Moody’s warns of U.S. credit rating cut if debt problems continue
WASHINGTON — Moody’s Investor Services warned that it probably would downgrade the Aaa credit rating of the U.S. if government officials don’t deal with the nation’s debt problems.
The credit rating firm said negotiations between Congress and the White House on the nation’s 2013 budget and a decision on reducing the high ratio of debt to gross domestic product will be key to acting on its top credit rating.
“If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable,” Moody’s said.
“If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1,” the company said.
That rating — a notch below Aaa — would be the equivalent of the rating that Standard & Poor’s put in place for the U.S. in mid-2011 when it downgraded the nation’s top-level rating after the divisive debate over raising the debt ceiling.
It was the first credit downgrade in U.S. history and was accompanied by a stock market plunge.
Moody’s and the third leading credit rating company, Fitch Ratings, kept the U.S. at the top level after Congress and the White House agreed to an increase in the debt ceiling. But Moody’s changed its outlook to negative, meaning that there was a risk of a downgrade in the future.
Moody’s said it would keep the Aaa rating with a negative outlook until budget negotiations are completed.
The U.S. national debt topped $16 trillion for the first time Aug. 31 amid lower revenue caused by the Great Recession and increased government spending to try to boost the economy. That brought the ratio of debt to GDP to more than 100%.
The Congressional Budget Office estimated last month the budget deficit for the 2012 fiscal year, which ends Sept. 30, will be about $1.1 trillion.
