Standard & Poor’s on Monday downgraded the outlook for the United States to negative, saying it believes there’s a risk U.S. policymakers may not reach agreement on how to address the country’s long-term fiscal pressures.
“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” the agency said in a statement.
In an interview with CNBC, David Beers, S&P’s global head of sovereign ratings, said the agency has been “struck increasingly by the difference in how other governments are dealing with fiscal consolidation.”
“The U.S. to us looks to be an increasing outlier in that context,” Beers added.
The White House strategy:
1) Pan S&P.
“I don’t think that we should make too much out of that,” top White House economist Austan Goolsbee said on MSNBC, referring to the S&P downgrade.
“What the S&P is doing is making a political judgment and it is one that we don’t agree with,” he said on CNBC.
2) Praise Moody’s.
The rival ratings agency said it viewed the direction of U.S. fiscal policy as “credit positive.”
“It appears to me that Moody’s and some others did not agree with that judgment,” Goolsbee said.
3) Express optimism.
White House and U.S. Treasury officials said they believed lawmakers would be able to come up with an agreement to reduce the U.S. deficit. S&P’s skepticism of that influenced its decision on the downgrade.
“We think that there has never been more momentum to try to get to fiscal consolidation, so we think that we should give that process its due,” a Treasury official said.
4) Buy time.
Obama administration officials said it would take some time to get a solution, and S&P should have waited to allow that to happen.