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S&P downgrades U.S. credit rating from AAA to AA+


The United States has lost its sterling credit rating.
Credit rating agency Standard & Poor’s on Friday lowered the nation’s AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.

While the downgrade was not a surprise, some selling is expected when stock trading resumes Monday morning. 


One fear in the market has been that a downgrade would scare buyers away from U.S. debt. If that were to happen, the interest rate paid on U.S. bonds, notes and bills would have to rise to attract buyers. And that could lead to higher borrowing rates for consumers, since the rates on mortgages and other loans are pegged to the yield on Treasury securities.


However, even without an AAA rating from S&P, U.S. debt is seen as one of the safest investments in the world. 


A study by JPMorgan Chase found that there has been a slight rise in rates when countries lost an AAA rating. In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10—year rates had barely moved.Japan had its ratings cut a decade ago to AA, and it didn’t have much lasting impact. The credit ratings of both Canada and Australia have also been downgraded over time, without much lasting damage.


S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

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