S&P Drops US Credit Outlook to 'Negative'

Standard & Poor’s reaffirmed America’s AAA credit rating today, but dropped its outlook to “negative,” saying there was “material risk” that US policy makers wouldn’t figure out how to handle the nation’s fiscal woes by 2013. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” the report said.

Treasuries and the dollar both fell on the report, according to Bloomberg, and the S&P 500 dropped 1.6%. This isn’t the first warning shot the credit agencies have fired the government’s way. But last week Moody’s sounded an optimistic note after Barack Obama revealed his plan to slice $4 trillion off cumulative deficits, saying it would be a “positive” for the nation’s credit rating if enacted. (More credit rating stories.)