The US has been warned that the credit rating on its government debt could be cut by Standard & Poor’s. S&P is concerned that Democrats and Republicans will not be able to agree a plan to reduce the growing US deficit. It has reduced its outlook from steady to negative, escalating the likelihood that the rating could be cut within the next two years.
The US Treasury responded that S&P had underrated its capability to tackle the national debt.
According to a press release , the US has relative to its top-rated peers, what we consider to be very large budget shortfall and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable. The surprise move sent US and European shares lower. The S&P 500 fell the most in a month, and the US dollar dropped against the euro and Swiss franc. Oil was also sharply lower.
The US federal deficit currently stands at $1.4tn and is expected to reach $1.5tn in the current fiscal year.