Moody's warns US may lose triple-A debt rating if no agreement is reached on the debt
The United States may lose its triple-A debt rating if next year's budget negotiations do not produce policies that over time decrease the country's debt, Moody's Investors Service said in an e-mailed statement on Tuesday.
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.
Rival ratings agency Standard & Poor's stripped the United States of its top ratings last year after Congress failed to come up with a long-term deficit reduction plan and political fighting brought the country to the brink of default.
The US dollar fell after the announcement, with the Euro spiking to a four-month high.
Moody's rates the United States Aaa but has the country on negative outlook. That probably won't change until after Congress concludes budget talks next year, it said.
But the current situation was unlikely to persist beyond 2014, the agency said. That would only happen if the method Congress adopted to reduce the deficit involved a large fiscal shock.
Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook, the agency said.
Such a shock could come if Congress allows a slate of temporary tax cuts to expire as planned at year-end. Automatic spending cuts would also be triggered.
The Congressional Budget Office said such an outcome could shrink US GDP by 2.9% in the first half of next year. In such a case, the CBO director said, Americans should expect a significant recession and the loss of some two million jobs.
Meanwhile an ABC News/Washington Post poll showed President Barack Obama and Republican challenger Mitt Romney remained in a virtual tie among likely voters, even when the president opened up a six-point lead among registered voters following the Democratic and Republican nominating conventions.
The poll gave Obama 49% and Romney 48% among likely voters, showing little movement from a survey taken before the party gatherings, which had Romney ahead by two points. Both of those results were within the margins of error for the surveys.
The tightness of the race among likely voters compared with registered voters reflects that Romney supporters say they are more likely to vote, and therefore the race may turn on which side gets its backers to the polls, said Gary Langer, president of New York-based Lange Research Associates, which conducted the poll.