S&P Downgrades US Credit Rating for First Time

Posted August 5th, 2011 at 10:00 pm (UTC-5)
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The credit rating agency Standard & Poor's has downgraded the U.S. credit rating for the first time ever from the country's elite triple-A status to double-A-plus, with a “negative outlook.”

S&P said late Friday it made the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

The agency also said downgrade reflects its view that the “effectiveness, stability and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”

Media reports citing White House officials say S&P miscalculated its projections on the U.S. debt plan by about $2 trillion.

U.S. President Barack Obama and Congress reached a deal a few hours before the deadline Tuesday to increase the nation's $14.3 borrowing limit and avoid an unprecedented default on the government's financial obligations. The deal calls for reducing the deficit by more than $2 trillion over 10 years. S&P had called for $4 trillion in savings.

The other two major credit rating agencies, Moody's and Fitch, have so far not downgraded the U.S. credit rating.

The development came on the same day the U.S. government announced a net gain of 117,000 jobs in July, and a slight decline in the unemployment rate to 9.1 percent. Friday's report from the Labor Department was better than economists had predicted.

The data also show the unemployment rate declined because some unemployed people gave up their job hunt in the belief there is no work available for them. Washington does not count people as unemployed unless they are actively seeking jobs.

U.S. President Barack Obama welcomed the job gains, but said the country must do better. Mr. Obama said the economy will improve, and pledged to press Congress for legislation to create jobs when lawmakers return to Washington next month.

The U.S. is the world's largest economy, but investors have voiced little confidence in the country's sluggish recovery, even with the agreement on the debt ceiling plan.