US President Barack Obama signed an emergency austerity bill that averted a debt default, but warned the contentious plan was "just the first step" on a long road to economic recovery.
But in a sign that the economic headaches were far from over for Washington, Chinese rating agency Dagong said Wednesday it had downgraded the US credit rating after the debt ceiling for the world's biggest economy was raised.
Dagong Global Credit Rating announced it lowered the US credit rating from A+ to A, with a negative outlook, according to Xinhua news agency.
The measure sent to Obama by deeply polarized lawmakers lifts cash-strapped Washington's $14.3 trillion debt limit by up to $2.4 trillion while cutting at least $2.1 trillion in government spending over 10 years, a step forecast to drag down already sluggish US growth.
"It's an important first step to ensuring that, as a nation, we live within our means," Obama said in the White House Rose Garden. "This is, however, just the first step."
Obama spoke after the US Senate voted 74-26 to pass the measure -- which cleared the House of Representatives by an overwhelming 269-161 margin on Monday -- with just hours to spare before a midnight (0400 Wednesday) deadline that could have triggered a first-ever US default on its debt payments.
"Slowing down the big-government freight train from its current trajectory will give us the time we need to work toward a real solution," said Republican Senate Minority Leader Mitch McConnell.
Congressional approval paid immediate dividends as the IMF applauded the deal and the Fitch and Moody's ratings agencies said the 11th-hour compromise would spare Washington from losing its sterling triple-A debt rating.
A downgrade would have likely led to a spike in US interest rates, making debt payments pricier and hurting Americans holding flexible-rate loans -- anyone carrying credit card debt or seeking an auto loan.
Moody's, which had warned of a possible downgrade in July due to fears that the government could be forced to default, added a "negative outlook" on the grade, saying a historic downgrade could still come if fiscal discipline weakens or economic growth deteriorates significantly.
And Fitch said it would keep a close eye on the country's long-term finances and pressed for "a credible multi-year deficit reduction plan" if Washington is to stay in the elite club of healthy, low-risk debtor economies.
The International Monetary Fund's Managing Director Christine Lagarde applauded the debt deal as "good for both the US and global economy" but pushed US leaders to craft a plan to put public finances "on a sustainable path."
Obama's 2012 reelection bid will turn on voters' perception of his handling of the US economy, which has labored under historically high unemployment above nine percent as it struggles to recover from the global meltdown of 2008.
The president promised the deficit-cutting would not starve education and research nor happen "too abruptly, while the economy is still fragile."
Republicans have promised the spending cuts will create jobs, but top Wall Street economists have warned the austerity measures will actually be a drag on sluggish US growth even as government stimulus measures run out.
The overall shift from priming the US economy to government belt-tightening is expected to reduce US growth next year by about 1.5 percentage points, according to JPMorgan Chase economists.
The vote came as the US Commerce Department reported that US consumer spending, the economy's key driver, fell 0.2 percent in June relative to May, while personal income was basically stagnant, with just a 0.1 percent increase.
Both figures fell short of analysts' expectations and offered the latest discouraging omen about the US economy, which grew at a feeble 1.3 percent in the second quarter of 2011, much worse than economists had expected.
US stocks plunged more than two percent, focusing on dismal economic numbers and the prospect of no more government spending to boost the economy.
The Dow Jones Industrial Average lost 2.2 percent while the broader S&P 500 dropped 2.6 percent.
Obama signaled he would campaign for raising tax revenues from the rich and wealthy corporations, a proposal that has already generated lockstep opposition from Republicans.
"I've said it before, I will say it again: We can't balance the budget on the backs of the very people who have borne the biggest brunt of this recession," he said. "Everyone's going to have to chip in. That's only fair."
Democrats, especially on the party's left flank, have expressed outrage that the bargain Obama struck with his Republican foes omitted any tax increase on the wealthy.
The new law calls for more than $900 billion in cuts over the next 10 years -- $350 billion of it in defense -- and creates a special congressional committee tasked with coming up with another $1.5 trillion in cuts to report by November 23, with Congress voting by December 23.
A failure by the committee would trigger painful, automatic cuts to key priorities of both parties.