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US Credit Rating Depends On 2013 Budget

by Leroy Baker, Tax-News.com, New York

13 September 2012


In an update to its outlook for the United States government’s Aaa credit rating, Moody's Investors Service has said that Congressional budget negotiations during 2013 will likely determine its direction and outlook.

In an announcement, Moody’s said that, “if those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to gross domestic product over the medium-term, the rating will likely be affirmed and the outlook returned to stable”.

However, it was added that, “if those negotiations fail to produce such policies, Moody's would expect to lower the rating, probably to Aa1”.

Moody's confirmed that “it views the maintenance of the Aaa (rating) with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shock - such as would occur if the so-called "fiscal cliff" actually materialized - which could lead to instability.”

Finally, it is also disclosed that the US rating outlook also assumes “a relatively orderly process for the increase in the statutory debt limit”. The debt limit will likely be reached around the end of this year.

TAGS: tax | economics | fiscal policy | budget | United States

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