S&P cuts long-term outlook for US debt to negative

NEW YORK — Standard & Poor’s Ratings Service cut its outlook today on the United States’ sovereign debt, saying there is a one in three chance it will downgrade the rating on the debt in the next two years.

The agency lowered the long-term outlook to “Negative” from “Stable.”

It reaffirmed its investment-grade credit ratings on the U.S. long- and short-term debt itself, but said the ratings are at risk from the country’s growing deficit.

S&P said the U.S. has a high-income, diversified and flexible economy that has helped it to encourage growth while containing inflation.

But the country’s ballooning deficit could offset those positives over the next two years.

The agency noted that the deficit grew to 11 per cent of gross domestic income in 2009. That is much higher than the average of two per cent to five per cent in the previous six years.

Stocks plunged after the rating agency lowered its outlook The Dow Jones industrial average fell more than 200 points in early-morning trading.

S&P said it has little confidence that the White House and Congress will agree on a deficit-reduction plan before the fall 2012 elections. By that time, the measures won’t go into effect until the fiscal year 2014.



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