Ratings agencies ready to move on debt-ridden United States
Two ratings agencies expect U.S. policy-makers to raise the debt ceiling, but lawmakers might also have to agree to meaningfully reduce the nation’s deficit in order for the United States to avoid downgrades, CNNMoney reported.
Moody’s Investors Services said this week that it would probably change its outlook on the nation’s AAA rating to “negative” from “stable” unless “substantial and credible agreement is achieved on a budget that includes long-term deficit reduction.”
On Thursday, Standard and Poor’s said there was a one-in-two chance it would downgrade the United States within 90 days.
Congressional leaders were told by President Barack Obama to decide by today whether they can move forward with a broad deficit reduction package. If no compromise is reached, the sole focus of negotiations could shift to increasing the debt ceiling.
Federal Reserve Chairman Ben Bernanke, who on Thursday told lawmakers that he never favored linking the debt ceiling vote to a deficit-reduction package, said a failure to reach a bipartisan agreement may have repercussions.
“I don’t know how quickly or in what degree the markets would respond, but I think they are looking to Washington to show that they can, you know, manage their spending and control deficits over a long period of time,” Bernanke said.
So far, the United States has held on to its AAA rating in part for having always stood behind its debt and staying current on paying bills. It’s unclear what Moody’s specifically meant by a “substantial and credible” agreement for deficit reduction, but the size, scope and content of any deal reached by lawmakers will likely be taken into account, CNNMoney said.
“If lawmakers end up with a debt-reduction package of any size that fails to address entitlements and the tax code, it’s not at all clear that would be sufficient to reassure credit rating agencies and markets,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
U.S. Treasury bonds have long been considered the world’s safe-haven investment.