THE NEWS: Standard & Poor's cut its outlook on U.S. government debt to negative from stable Monday, citing ongoing concerns over the country's long-term fiscal health. The decision, which also reaffirmed the debt's AAA rating, sent the dollar, U.S. equities and longer-term Treasurys lower.
THE DETAILS: S&P said it is unsure that the "gulf of differences" between Republicans and Democrats over how to reduce the deficit can be overcome to provide meaningful change, said David Beers, global head of sovereign debt ratings at S&P.
S&P credit analyst Nikola Swann said the ratings agency puts the chance of the U.S. losing its coveted AAA rating within two years at 1 in 3.
ANOTHER OPINION: Earlier in the day, Moody's, another major credit rating agency, called the seriousness of the debate in the U.S. about its deficit a positive "turning point" for its long-term fiscal position.
Moody's added that although getting political agreement on a final budget will be "extremely difficult" due to differences on taxes and health care, the "changed parameters" of the debate are positive for the U.S.'s Aaa rating.
OBAMA ADMINISTRATION REACTION: The White House said it disagrees with the negative outlook but suggested it adds momentum to push Republicans and Democrats to find a solution to the debt problem. "We think that the political process will outperform S&P expectations," White House press secretary Jay Carney said.
- U.S. stocks fell sharply on the news and were recently down about 1.5% at 12160. The S&P 500 index slid below the psychologically important 1300 mark before recovery. It was recently down 1.4% at 1301.