Given the size of the US Federal deficit, which will be close to 10% of GDP this year, and the daunting medium-term fiscal challenges, it is hard to argue with S&P's decision to put a negative outlook on the country's AAA credit rating. Nevertheless, at a time when the politicians on both sides have finally started to talk seriously about a meaningful deficit reduction, we find the particular timing of this move a little strange. If the rising risk of a downgrade gives the fiscal austerity debate a greater sense of urgency, however, then it might even turn out to be a positive development.
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