In an announcement Thursday, Moody’s Investor Services said it would likely take the nation’s credit rating under review for possible downgrade if the debt ceiling is not raised soon, due to the increasing risk of a default. The notice highlighted worse-than-expected political tensions and the resulting unlikelihood of Congress reaching an agreement that would allow the United States government to continue to pay its bills into August.
“Moody’s announcement is proof positive that gridlock over the debt limit could push the nation back into a financial crisis. Those spreading misinformation and risking the full faith and credit of the United States government for their own political gains should be held responsible if an agreement is not reached,” said Himes. “The political gamesmanship over the debt ceiling absolutely must stop.”
From the announcement:
Moody's Investors Service said today that if there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the US government's rating under review for possible downgrade, due to the very small but rising risk of a short-lived default. If the debt limit is raised and default avoided, the Aaa rating will be maintained.
However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating.
Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations. The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review.
Read the full announcement here.