For the first time in history, the United States’ top notch triple A credit rating has been downgraded by credit rating agency Standard and Poor’s later on Friday after markets were closed.
S & P announced that it cut the U.S.’s credit rating by one level down to AA+ after a thorough review of the financial situation of the U.S. economy and came to a conclusion to change the current rating based on the U.S. government’s short-term fix to the debt ceiling crisis.
The downgrade of came after a last minute deal on raising the debt ceiling was finally reached before the August 2nd deadline, after a weeks long tense debate between Republicans and Democrats in the U.S Congress, including Republican John Boehner and Senator Harry Reid.
In their statement, S & P said that:
“We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.”
The ratings agency added that they kept the outlook on the U.S. rating at “negative” as it became less confident Congress will end Bush-era tax cuts or tackle entitlements.
“The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rise or “new fiscal pressures” result in higher general government debt,” the New York-based firm said.
As markets open the new trading week it is expected that risk aversion will cause a massive sell off of risk currencies as investors will turn to traditional safe-haven currencies such as the Swiss franc and yen.