S&P Warns US ‘AAA’ Rating in Jeopardy

April 19, 2011 Updated: April 19, 2011

NEW YORK—One of the biggest global credit ratings agencies, Standard & Poor’s, issued a warning to the U.S. federal government that its long-term “AAA” rating may be in jeopardy if it cannot overcome its deficit concerns.

For the first time in its ratings history, the U.S.'s “AAA” rating is being questioned by S&P, one of the three biggest credit ratings agencies in the world. S&P reaffirmed its “AAA” rating of the United States, but changed its long-term outlook from “stable” to “negative,” which means that a ratings cut may be in line in the future.

S&P warned that if Democratic and Republican lawmakers cannot agree on a plan to rein in the federal deficit, it may cut its rating, which would greatly increase the U.S. borrowing rate.

"Although we believe these strengths currently outweigh what we consider to be the U.S.'s meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the 'AAA' level," said Standard & Poor's credit analyst Nikola G. Swann in a statement.

With the warning, stocks suffered a large drop on Monday afternoon. It was the first time a major ratings agency issued such a warning to lawmakers.

"More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse [the] recent fiscal deterioration or address longer-term fiscal pressures," Swann said.