Moody’s today warned that it may lower U.S. debt rating unless congressional negotiations lead to specific policies that will deliver stable and later falling trend in the federal debt/GDP ratio. Unless that scenario materializes, the ratings agency expects a cut of 1 notch to Aa1.
The Agency also said that the current U.S. rating, Aaa with negative outlook, is unlikely to be maintained into 2014. Moody’s said that the only scenario that wold lead to maintaining the rating would be if the “fiscal cliff” or other large and immediate fiscal shock occurred. In that scenario, the ratings agency would need to see evidence that the U.S. Economy could rebound from the shock before upping the outlook to stable.
They also note that it is hard to predict exactly when in 2013 will the Congress negotiations conclude with a budget package, adding that the current rating will likely be maintained until the outcome of said negotiations becomes clear. “The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit” Moody’s added.
When asked how confident he was that a failure of negotiations could be avoided, the current speaker of the House, John Boehner, a Republican, said that he’s not at all confident. No substantial negotiations are expected until after the U.S. Presidential elections in November.