Standard & Poor’s surprised markets today with a warning that the AAA rating of US debt is now on “negative watch”, implying that there is a one-in-three chance that the US might lose its triple-A status in the next two years. Although there was nothing new in the underlying data cited by S&P, their judgment has clearly been impacted by the sharp political differences which have recently emerged in Washington about how to cut the deficit.
Both political parties agree that a large fiscal consolidation plan is needed, but they have widely different points of view on how the savings should be found. This has caused S&P to express scepticism about whether Washington can reach agreement on a deficit reduction plan and then stick to it over a series of difficult years. Read more