Moody's warns US not to back off deficit cuts

AP News
Posted: Nov 23, 2011 4:42 PM
Moody's warns US not to back off deficit cuts

Moody's Investors Services warned on Wednesday that it could downgrade the U.S. government's top credit rating, if Congress backs off $1.2 trillion in automatic deficit cuts scheduled over the next decade.

The credit rating agency said in a statement it will not lower the nation's rating on long-term debt after a special congressional panel failed this week to reach agreement on alternative cuts to the deficit.

The impasse triggered the automatic cuts, which are scheduled to kick in beginning in 2013. Moody's said any effort to reduce those cuts could force the agency to downgrade its rating.

Moody's currently has U.S. government debt with a top rating of Aaa but with a negative outlook.

The agency said it had decided to take no action based on the failure of a special congressional panel to come up with a plan because the automatic cuts will arrive at the same level of deficit reduction. Some Republicans are vowing to block the cuts slated to occur in defense programs, which amount to about half of the total.

In its statement, Moody's said, "While a change in the composition of the spending cuts would not be a major rating consideration, a reduction in the total amount ... could have negative rating implications."

Moody's did not say when it would conduct its next review of the U.S. credit rating. Fitch, another rating agency, also has a triple-A rating on U.S. debt but said in August that a failure of the congressional panel to produce a plan could lead to a reassessment of that rating. Fitch has said it will issue its next report at the end of the month.

On Monday after the announcement of the 12-member congressional panel's impasse, Standard & Poor's said it would not downgrade the U.S. credit rating. Like Moody's, it warned that its present rating was based on the expectation that the automatic cuts will not be reduced.

S&P in August cut its rating of long-term U.S. Treasury securities by one notch from AAA to AA+, the first such downgrade of U.S. government debt in history.