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U.S. Challenges S&P on Plan to Downgrade AAA Rating, CNN Says

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Aug. 5 (Bloomberg) -- U.S. officials challenged Standard & Poor’s analysis after the rating firm told the government it planned to downgrade the nation for the first time in history, according to a CNN report.

The firm, which has given the U.S. its top AAA ranking since 1941, said on July 14 that there was a 50 percent chance it would reduce the rating in the absence of a “credible” plan to lower deficits. Officials at New York-based S&P didn’t respond to e-mails and calls for comment. The Wall Street Journal reported that S&P miscalculated future deficit projections by almost $2 trillion, citing people familiar with the matter it didn't identify.

While demand for U.S. government debt has surged in recent weeks, a downgrade may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a cut would raise the nation’s borrowing costs by $100 billion a year.

Moody’s Investors Service and Fitch Ratings affirmed their AAA ratings after a compromise was passed on Aug. 2 to raise the U.S. debt limit and to form a committee to cut spending by $2.4 trillion. S&P indicated last month that anything less than $4 trillion in cuts would jeopardize its AAA rating.

“A grand bargain of that nature would signal the seriousness of policy makers to address the fiscal situation in the U.S.,” John Chambers, chairman of S&P’s sovereign rating committee, said in a video interview distributed by the ratings firm on July 28.

S&P President Deven Sharma said at a July 27 congressional hearing that the ratings firm shares draft press releases with the entity it is rating ahead of any public announcement “to give the issuer a chance if there are any factual errors or anything else in the press release.”

CNBC and ABC reported earlier that U.S. officials were bracing for a downgrade.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net