One of the world’s leading credit rating agencies, Standard & Poor’s, has downgraded the United States’ top-notch AAA rating for the first time ever.
S&P cut the long-term US rating by one notch to AA+ with a negative outlook, citing concerns about budget deficits.
The agency said the deficit reduction plan passed by the US Congress on Tuesday did not go far enough.
Correspondents say the downgrade could erode investors’ confidence in the world’s largest economy.
It is already struggling with huge debts, unemployment of 9.1% and fears of a possible double-dip recession.
The downgrade is a major embarrassment for the administration of President Barack Obama and could raise the cost of US government borrowing.
This in turn could trickle down to higher interest rates for local governments and individuals.
However, some analysts said with debt woes across much of the developed world, US debt remained an attractive option for investors.
The other two major credit rating agencies, Moody’s and Fitch, said on Friday night they had no immediate plans to follow S&P in taking the US off their lists of risk-free borrowers.
‘Flawed judgement’
Officials in Washington told US media that the agency’s sums were deeply flawed.
Unnamed sources were quoted as saying that a treasury official had spotted a $2 trillion [£1.2 trillion] mistake in the agency’s analysis.
“A judgment flawed by a $2tn error speaks for itself,” a US treasury department spokesman said of the S&P analysis. He did not offer any immediate explanation.
John Chambers, chairman of S&P’s sovereign ratings committee, told CNN that the US could have averted a downgrade if it had resolved its congressional stalemate earlier.
“The first thing it could have done is raise the debt ceiling in a timely matter so the debate would have been avoided to begin with,” he said.
International reaction to the S&P move has been mixed.
China, the world’s largest holder of US debt, had “every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” said a commentary in the official Xinhua news agency.
“International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” the commentary said.
However, officials in Japan, South Korea and Australia have urged a calm response to the downgrade.
The S&P announcement comes after a week of turmoil on global stock markets, partly triggered by fears over the US economy’s recovery and the eurozone crisis.
I hope this downgrade does not impact the stock markets much
already markets have lost a lot in the past 1 week and i hope there is no more bloodshed