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| S&P |
In a move that surprised and rattled the financial markets, S&P said it was cutting its long-term outlook on America from stable to negative.
The ratings agency said it was taking the step because the US had, in comparison to other nations given the coveted AAA rating, "very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us".
The White House said it disagreed with the S&P judgement and insisted that the Obama administration would reach agreement with Congress over a way to reduce the US budget deficit, which has moved from a surplus at the turn of the millennium to a deficit of 11% by 2009. But the ratings agency said the gap between the White House and its Republican opponents remained "wide", adding that it believed there was at least a one in three chance that "we could lower our long-term rating on the US within two years."
In early trading in New York, the Dow Jones industrial average had lost nearly 250 points – 2% – with the dollar weaker on the foreign exchanges and yields rising on US Treasury bills. The FTSE 100 in London was also down 2% or 126 points at 5869.
The S&P warning shot to the US authorities mirrored the outlook change delivered to the UK in May 2009, which demanded that the UK government take action to rein in the budget deficit. Analysts said they would be watching closely to see whether the other ratings agencies - Moody's and Fitch followed suit.
