S&P downgrades U.S. credit rating from AAA

WASHINGTON - (AP) - Credit rating agency Standard & Poor's onFriday downgraded the United States' credit rating first time inthe history of the ratings. The credit rating agency said that it is cutting the country'stop AAA rating by one notch to AA-plus. The credit agency said thatit is making the move because the deficit reduction plan passed byCongress on Tuesday did not go far enough to stabilize thecountry's debt situation. A source familiar with the discussions said that the Obamaadministration feels the S&P's analysis contained "deep andfundamental flaws." S&P said that in addition to the downgrade, it is issuing anegative outlook, meaning that there was a chance it will lower therating further within the next two years. It said such a downgradeto AA would occur if the agency sees less reductions in spendingthan Congress and the administration have agreed to make, higherinterest rates or new fiscal pressures during this period. S&P first put the government on notice in April that a downgradewas possible unless Congress and the administration came up with acredible long-term deficit reduction plan and avoided a default onthe country's debt. After months of wrangling and negotiations with theadministration, Congress passed this week a debt reduction packageat the 11th-hour that averted a possible default. In its statement, S&P said that it had changed its view "of thedifficulties of bridging the gulf between the political parties"over a credible deficit reduction plan. S&P said it was now "pessimistic about the capacity of Congressand the administration to be able to leverage their agreement thisweek into a broader fiscal consolidation plan that stabilizes thegovernment's debt dynamics anytime soon."

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