Moody’s Investors Service says the United States should be able to keep its triple-A credit rating as long as Washington works out a deal that lets it continue to pay bondholders.
The credit rating agency on Friday said it thinks that even if the country’s $US14.3 trillion ($A13.03 trillion) borrowing limit isn’t raised by Tuesday’s deadline, the government would give priority to making interest payments on its debt and thereby avoid a default.
Moody’s had warned on July 13 that the country’s credit rating was in danger of being downgraded because of the stalemate in Congress over raising the debt limit.
In its statement on Friday, however, Moody’s said that based on its current review it would likely rate the US debt as triple-A but with a negative outlook.
That would mean that there is a possibility of a downgrade in the future.
“If there were a default on a Treasury debt obligation, a downgrade would likely follow, even if the default were swiftly cured and investors suffered no permanent losses,” Moody’s said in its new report.
Credit rating agencies assess the riskiness of debt issued by companies and governments.
The three major agencies – Moody’s, Standard & Poor’s and Fitch Ratings – have all raised warnings in recent months that they might downgrade the US government’s triple-A rating.
Such a downgrade would send shockwaves through the financial system.
The government has had the highest credit rating for nearly a century.
That rating has allowed the United States to pay the lowest interest rates possible to finance Treasury debt.
The announcement by Moody’s on Friday followed favourable comments on Wednesday by Deven Sharma, the president of Standard & Poor’s.
He told a congressional committee that some of the deficit-cutting plans Congress is considering would lower the US debt burden enough to allow the country to retain its triple-A rating.
However, Sharma said that S&P would not make a final determination until it had a much clearer view of what package of deficit-cutting proposals Congress would be adopting as part of a deal to raise the debt limit.
However, he said that previous reports indicating that Congress would need to make $US4 trillion ($A3.64 trillion) in deficit cuts over 10 years to retain a triple-A rating were not accurate.
He declined during his testimony to be specific about the threshold, although he said the plan would have to make a credible attack on the US deficit problems.
