Ratings agency Standard & Poor’s has warned there is a one-in-two chance it could cut the United States’ prized AAA credit rating if a deal on raising the government’s debt ceiling is not agreed soon. Putting the US on negative watch, S&P warned that it could cut the rating as soon as this month if talks between the White House and Republicans remain stalemated.
Any cut would be by one or more notches, it added. The dollar fell on the news. US Treasuries were largely steady. John Chambers, the chairman of S&P’s sovereign ratings committee, said “this is the time” for the two sides to tackle the country’s long-term debt problems. “If you get a small agreement, that will lead to a downgrade,” he said in an interview. A downgrade could raise borrowing costs not only for the United States but also for loans that use the Treasury rate as a benchmark. Some money managers that are restricted to investing only in AAA-rated assets would be forced to dump Treasuries, which could spread disruption through global financial markets.
The S&P warning comes just a day after Moody’s Investors Service warned the US may lose its top-notch credit rating in the next few weeks if lawmakers fail to increase the country’s legal borrowing limit of $14.3 trillion and the government misses debt payments. The deadline to raise the ceiling is on August 2. “Today’s CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the US within the next 90 days,” the agency said in a statement.
