The United States has suffered the first downgrade to its credit rating in history, as Standard & Poor's has reduced the nation's rating from AAA to AA+.
The credit rating firm said the recent plan to raise the debt limit while reducing the debt "falls short" of its expectations, but also offered broader condemnations of America's political process.
S&P said it was "pessimistic" about the ability of Congress and the White House to reach a broader plan to rein in the deficit "any time soon."
The Treasury Department immediately pushed back against the downgrade by S&P, accusing the rater of having major calculation errors that threw the firm's entire rationale into doubt.
"A judgment flawed by a $2 trillion error speaks for itself," said a Treasury spokesperson.
After being presented with S&P's economic rationale for the downgrade, Treasury officials immediately pointed out a perceived error in the analysis, which found it had pegged discretionary spending levels at $2 trillion too high, compared to analysis from the Congressional Budget Office. That calculation error resulted in a much higher growth rate of the nation's debt-to-GDP ratio.
S&P acknowledged the error, and removed that portion of the analysis from its statement.
Reactions from lawmakers:
Reid: S&P downgrade backs Dems' call for more revenue
BoehnerJohn BoehnerLobbyists bounce back under Trump Business groups silent on Trump's Ex-Im nominee Chaffetz won't run for reelection MORE-blames-democrats" mce_href="http://thehill.com/blogs/on-the-money/801-economy/175745-boehner-blames-democrats"> Boehner blames Democrats for S&P downgrade
Pelosi: Pressure on supercommittee now
DeMint: Geithner must go
The ratings agency blasted elected officials for failing to make the tough choices to get the fiscal house in order, but refused to weigh in on the fundamental fight in Congress — whether increased revenues should be part of any deal to reduce the deficit.
"Elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating," it wrote, adding, "Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing."
It added that the nation's rating could be lowered further to AA within the next two years if the government's fiscal problems do not improve, while assigning a negative outlook to its current rating.
The firm's move comes after the other two major raters — Moody's Investors Service and Fitch Ratings — confirmed their AAA ratings for the United States following the debt deal.
S&P had consistently been the most pessimistic of the major raters when it came to U.S. debt and the debt limit. It put forward the sternest and most detailed warning to policymakers, saying in July that it saw 50 percent odds it would downgrade the nation’s debt in the next three months. The firm had said that $4 trillion in cuts would be a good start towards protecting that rating. But the debt deal that averted a government default will yield at most $2.3 trillion in deficit reduction, leading many to suspect a downgrade could be in the works.
It also comes after a busy Friday that saw the stock market fluctuate widely from positive to negative territory, driven in part by market rumors that a downgrade was on the way. On Thursday, the Dow Jones Industrial Average dropped 512 points in its worst day since the financial crisis.