Stocks fall as U.S. credit rating outlook lowered to 'negative' by Standard & Poor's [Updated]
The report released Monday morning says that the United States has a large debt and deficit compared with other highly rated nations, and unlike with those other nations "the path to addressing [the debt and deficit] is not clear to us."
The United States kept its AAA rating, but the downgrade to the outlook means that S&P analysts believe there is at least a 33% chance that the agency will have to lower its credit rating on U.S. debt in the next two years.
"More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures," S&P analyst Nikola Swann said in a statement.
The United States debt is currently approaching the legally set debt ceiling of $14.3 trillion, though the White House and Republican congressional leaders have indicated they are likely to come to an agreement to raise the limit.
Even if that happens, S&P analysts expressed concern in their report that the United States will not succeed in taking longer-term measures to rein in the rising national debt.
Republican leaders and President Obama have recently introduced rival plans for reducing the government deficit. S&P analysts wrote that they were skeptical that the two sides could come together. Even if they do, the report says, their plan could take time to implement and could be reversed by future political leaders.
The Treasury Department responded to the report with a statement from Mary Miller, assistant Treasury secretary for financial markets, saying that "addressing the current fiscal situation is well within our capacity" and arguing that the S&P "underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation."
Steve Ricchituo, chief economist at Mizuho Securities in the U.S., wrote in a note to clients that "the shift to negative watch was a surprise to the market even though the action is long overdue."
[Updated at 1:03 p.m.: The Dow Jones industrial average finished the day down 140.24 points, or 1.14%, at 12,201.59, after falling as much as 248 points early on. The broader S&P 500 index dropped 14.54 points, or 1.1%, to 1305.14.]
-- Nathaniel Popper
Photo: The Treasury Department gave a quick and critical reaction to Standard & Poor's warning that the outlook on U.S. debt was "negative," saying it underestimated the U.S. government's ability to tackle the problem. Credit: Karen Bleier / AFP/Getty Images