S&P Downgrades U.S. Outlook

NEW YORK (TheStreet) -- Standard & Poor's has downgraded its long-term ratings outlook on U.S. sovereign debt, citing worries about the country's mounting budget deficits.

While S&P acknowledges that the U.S. has been effective in its monetary policies, the consistent global preference for dollar over other currencies and the flexibility and diversification of the domestic economy, it proceeds with the downgrade to negative from stable because of the country's "very large" budget deficits relative to AAA peers and uncertainty over how they will be resolved.

The rating agency says there's a lack of clarity on how the U.S. government plans to address the budget deficits.

"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013," S&P warned.

"If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer AAA sovereigns."

The rating agency affirmed its AAA long-term and A-1+ short-term sovereign credit ratings on the U.S.

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-- Written by Andrea Tse in New York.

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