Moody's Investors Service reaffirmed the United States' triple-A rating but has put the country's credit rating on a negative outlook, which means the U.S. faces a one-in-three chance of a downgrade.
Moody's had already warned it would take this action. Standard & Poor's has already given the U.S. 50-50 odds of a downgrade if the government does not come up with a credible plan to cut the deficit by $4 trillion over the next decade, a sum Moody's has agreed with.
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What is striking here is that Moody's also concurs with S&P which has already said the government's "acrimonious" fighting over deficit reduction is "detrimental" to the U.S.'s top-notch credit standing.
In a press release in announcing that it is reaffirming the triple-A rating, Moody's now says that "wide political differences that have characterized the recent debt and fiscal debate, if they continue, could prevent effective policymaking."
It also warned there is "a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the US government's funding costs over and above what is currently expected."
And it says a rise in interest rates would hurt the country's ability to meet its interest payments owed on US debt and hurt deficit reduction. "A rise in borrowing costs above and beyond what is now expected would threaten efforts at fiscal consolidation," Moody's said in a statement.