Moody’s “may downgrade USA”

New York – Moody’s Investors Service said on Tuesday it would likely deprive the United States of its triple- A rating if the US Congress failed to reach a long-term debt reduction plan next year.

In its latest report entitled ‘Update of the Outlook for the US Government Debt Rating’, Moody’s said the direction of the US government’s rating and outlook would be determined by the budget negotiations during the 2013 Congressional legislative session.

The US Aaa rating will be affirmed and the outlook will be returned to “stable” from “negative” if negotiations between two parties go well and end up with specific policies that produce stabilisation, Moody’s said.

Otherwise, according to the rating agency, Moody’s would expect to lower the rating, probably to Aa1.
Moody’s noted that it was difficult to predict when during 2013 Congress would conclude negotiations that result in a budget package.

The Aaa rating, with its negative outlook, was likely to be maintained until the outcome of those negotiations becomes clear.

However, Moody’s viewed the maintenance of the Aaa rating with a negative outlook into 2014 as unlikely, only if Congress chooses to achieve debt stabilization by a large, immediate fiscal shock such as “fiscal cliff,” which consists of a series of tax increases and spending cuts.

Under these circumstances, the agency then needs evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.

Another factor influencing Moody’s outlook will be the debt ceiling, which will likely be reached around the end of this year.

Moody’s assumed that Congress will increase the limit “in a relatively orderly process,” but the rating agency would put the US rating under review during negotiations over the debt limit. –