CNBC is reporting that Moody’s is reviewing the United States government’s AAA credit rating and will consider downgrading it should a deal to raise the debt ceiling not be reached by the August 2nd deadline.
The statement by Moody’s Investors Service announcing the move cited the “rising possibility that the statutory debt limit will not be raised on a timely basis.”
The ratings agency said that while it continues to believe the chance of no deal being reached is “low,” it cannot be ruled out.
“An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a AAA rating would likely no longer be appropriate,” the statement said.
The United States has enjoyed a AAA rating continuously since 1917.
The statement also said that any deal to raise the debt ceiling should include a “long-term deficit reduction” package.
“To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilisation and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years,” the ratings agency said.
Moody’s also put on review the AAA ratings of various entities associated with the U.S. government, like Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, according to Bloomberg.
The Treasury Department immediately touted the Moody’s warning as evidence that Congress has to act.
“Moody’s assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country’s obligations and agree upon a substantial deficit reduction package,” Treasury Under Secretary for Domestic Finance Jeffrey Goldstein said in a statement, Reuters reports.
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