S&P move puts pressure on Congress and White House

Reuters News
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Posted: Apr 18, 2011 1:33 PM
S&P move puts pressure on Congress and White House

By Jeff Mason and Kim Dixon

WASHINGTON (Reuters) - Standard & Poor's set a timer on the U.S. debt debate on Monday, pushing President Barack Obama and Republicans to strike a deficit-cutting deal soon with a threat to strip Washington of its coveted triple-A credit rating.

But S&P's action -- downgrading its outlook on the U.S. rating to negative from stable -- does not guarantee a deal.

While the White House dismissed the action, saying all sides were making progress toward agreement, Republicans and Democrats remain far apart on where to make the cuts that will be needed for long-term deficit reduction.

"Any call for a bipartisan agreement on deficit reduction on fiscal reform is a welcome one, and in that context, I think that (the S&P move) adds to what we believe is some momentum toward that end," said Jay Carney, White House spokesman.

Obama and Republican congressional leaders have sparred for weeks over how to tackle the deficit, which is projected to hit $1.4 trillion this fiscal year.

Republicans and Democrats unveiled competing plans to bring deficits down to a sustainable level by the end of the decade, but they differ sharply on how to reach those levels.

Representative Eric Cantor, the No. 2 House Republican, called the Standard & Poor's downgrade of U.S. credit outlook "a wake-up call" against those seeking to "blindly increase" the U.S. debt limit.

Cantor said the S&P action makes clear that any increase in the debt limit must be accompanied by "meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt."

S&P zeroed in on the differences, saying it saw a risk that U.S. policymakers would not reach agreement on long-term U.S. fiscal woes by 2013.

S&P's action -- and the accompanying fall in U.S. stock prices -- will light a fire under negotiators in Washington, some analysts said.

But Moody's Investors Service, S&P's main competitor, read the debate in Washington differently, saying both sides' plans for deficit reduction represent a "potential change in the direction of fiscal policy (that) is credit positive for the U.S. federal government."

Greg Valliere, a political analyst for investors at Potomac Research Group, said S&P's action makes a deal even more likely

in late June or early July

"I think it stiffens the resolve of people that are convinced that we have to take action," Valliere said.

But Sean West, a fiscal policy analyst for investors at the Eurasia Group, said the S&P action in itself will not affect whether lawmakers can reach agreement before 2012.

"It drives home the fact that for all the talk in Washington, there is nothing on the table that is moving," he said.

Polls show Americans are deeply worried about the state of the country's finances, which will be one of the driving issues in the 2012 presidential and congressional elections.

Lawmakers backed by the conservative Tea Party movement, which helped Republicans take control of the House in last year's elections, said S&P's move was an endorsement of their budget - cutting platform.

"It is a vindication of the Tea Party and their stance that we are spending too much," Republican Representative Blake Farenthold, a member of the House Tea Party Caucus, said in a telephone interview.

(Additional reporting by Andy Sullivan and Thomas Ferraro; Editing by Vicki Allen)