Trouble Ahead? S&P Cuts US Ratings Outlook

Apr 18, 2011

Today, the S&P has cut the US ratings outlook from stable to negative, while maintaining our triple-A rating. While this does not represent a direct hit to the nation's credit, it serves as yet another warning that a downgrade may be in the near future.

One of S&P's credit analysts, Nikola Swann, said that because lawmakers have not agreed on a fiscal plan and debt continues to rise, S&P believes that there is a one-third chance that the US will be downgraded.

This is not the first time that the US has been warned about possible hits to its AAA rating. Back in December, on the verge of the tax cut extension being passed, Moody's announced that passage of the deal would increase the likelihood that they would downgrade the US's rating. Also, in August of last year, S&P sovereign rating committee chairman John Chambers urged Congress to take a close look at the Fiscal Commission recommendations once released (not yet out at the time) and act soon or risk hurting our credit standing.

This time, though, assistant Treasury secretary Mary Miller shot back at the S&P warning, saying, "We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation." Given the developments of the past few weeks, we are optimistic that she may be right, but this does not change the fact that our current fiscal path is unsustainable.