Moody's warns of US credit downgrade
12 September 2012
Moody's Investors Service today warned it might join Standard & Poor's in downgrading US credit rating unless Congress reduced the debt- to-gross-domestic-product ratio during next year's budget negotiations.
The US economy would probably slip into recession next year if lawmakers and President Barack Obama were to fail to break an impasse over the federal budget and if George W Bush-era tax cuts expired in what had come to be know as the ''fiscal cliff,'' according to a report by the nonpartisan Congressional Budget Office, published on 22 August.
The rating would likely be cut to Aa1 from Aaa if an agreement on the debt ratio was not reached, Moody's said in a statement today.
Moody's put the rating under review with a negative outlook in August 2011, when the US deferred a decision on spending and upped its so-called debt ceiling after months of political wrangling. S&P cut its rating to AA+ that month, blaming the nation's political process.
Meanwhile, treasuries rallied with investors ignoring the warning, and the yield on the benchmark 10-year note declined to record lows, drawing the ire of investors such as Warren Buffet, the biggest shareholder of Moody's, who said after the S&P decision that the US should be ''quadruple-A.''
Hours after Moody's statement, the $32 billion auction of three-year notes saw record demand.