The two sides have agreed to raise the debt ceiling by a further $2.4bn in return for a reduction in its deficit by a similar amount over the next ten years. The cuts will initially be made in two stages to avoid further debate, with an initial $900bn of deficit reductions followed by $1.5trn still to be agreed.
The deal still has to go through Congress before President Obama can sign it off before the deadline of tomorrow (2 August).
Standard & Poor’s has been consistent in its view since it has had the US on review for a possible downgrade that it wanted to see deficit cuts of at least $4trn rather than the $2.4trn planned.
Moody’s has taken a more moderate stand, saying it is likely to retain the US AAA-rating as long as the debt ceiling is raised though it will still keep it on a negative watch.
Announcing the agreement last night, Senate majority leader Harry Reid said it would not be welcomed by all Republicans or all Democrats and, while he did sign off the agreement he added that there is still a great deal of uncertainty surrounding the arrangement.
As do many commentators, both agencies agree that the way the US has gone about devising this plan to cut its deficit and raise its debt levels has been poorly handled and the sentiment from others towards the US economy as a result has been adversely affected.
