Debt Ceiling Won't Hurt U.S. Rating, Moody's Says
The U.S. most likely won't lose its prized triple-A credit rating on the upcoming government showdown over the federal budget and debt ceiling, Moody's Investors Service said Tuesday.
Congress has until Sept. 30 to pass a federal budget, or else the government will shut down. In addition, the U.S. Treasury is set to bump up against its $16.7 trillion borrowing limit around mid-October, unless legislators move to raise the debt ceiling.
Still, Moody's assigns a slim chance that the government will shut down for a sustained period of time and fail to pay its bills. The debt ceiling "has always been raised in the past .. even if it's at the last minute," said Steven Hess, senior vice president at Moody's, in an interview.
He said the upcoming congressional battle is unlikely to result in a downgrade of the U.S. rating or outlook. Moody's gives the U.S. its top sovereign rating of triple-A, with a stable outlook. The firm raised its outlook on the U.S. rating from negative two months ago, citing an improved forecast for the U.S. government's debt trajectory.
A similar debt-ceiling impasse occurred in the summer of 2011, roiling financial markets and prompting Standard & Poor's Ratings Service to strip the U.S. of its triple-A rating for the first time. Moody's placed the U.S. on negative outlook at that time.
"The situation is fundamentally a bit better this time," Mr. Hess said, noting that a downgrade of the U.S. credit rating is unlikely over the next two years. "We don't think this is cause for any ratings action at this point."
The U.S. budget deficit was much larger in 2011, meaning the failure to raise the debt limit would have resulted in more severe cuts to government spending, Mr. Hess said. At that time, borrowing financed 30% of total government spending, compared with the current 15% to 20%. There's now a longer time frame before a lack of government fiscal action would threaten the rating, he added.
Mr. Hess's comments come on the heels of a Moody's report Tuesday that said a failure to raise the country's debt limit would result in a more-negative outcome for financial markets and the economy than a government shutdown. If the government shuts down, it could still make interest payments on its debt, while a failure to raise the debt limit would be associated with a higher probability of a sovereign default.
Fitch Ratings also rates the U.S. at triple-A, although with a negative outlook. After the S&P downgrade in 2011, that ratings company has the U.S. at double-A-plus, one notch below the top rating, with a stable outlook.
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(END) Dow Jones Newswires 09-24-131005ET Copyright (c) 2013 Dow Jones & Company, Inc.