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Moody's keeps U.S. triple-A rating, but says outlook is negative

August 2, 2011 |  3:35 pm

Moody's Investor Services
Moody's Investor Services said Tuesday that the signing of the debt ceiling deal assures that the U.S. will keep its triple-A credit rating for now, but said the longer-term outlook is negative because of slower economic growth and questions about future spending cuts.

The decision by Moody's followed the announcement by Fitch Ratings that it was maintaining its triple-A rating for the U.S. as well. Both moves were expected. Standard & Poors, the credit rating agency seen as most likely to downgrade U.S. debt, has not announced its decision.

Moody's said the U.S. kept its top-level rating because legislation increasing the $14.3-trillion debt limit, which the Senate approved Tuesday and President Obama quickly signed, "virtually eliminated" the risk of a U.S. default.

The firm also said that the debt ceiling deal is a first step toward the long-term deficit reduction needed in the U.S. But it changed its outlook for the nation's credit rating to negative, meaning there was a risk of a downgrade, for several reasons.

Moody's said the two-step spending cut process approved by Congress -- an initial $917 billion over 10 years with automatic spending cuts of at least $1.2 trillion if a special committee doesn't agree on deeper reductions -- is "untested."

"Attempts at fiscal rules in the past have not always stood the test of time," Moody's said. In addition, more cuts probably would be needed, it said.

Also leading to the negative outlook is the dramatic slowdown in economic growth in the first half of the year, which will make spending cuts more difficult, Moody's said. And the cost of borrowing by the Treasury could rise over time, worsening the government's financial situation, the firm said.

RELATED:

Senate approves debt-ceiling increase; Obama to sign

Credit ratings agencies mum so far on debt-ceiling deal

S&P president says rating firm doesn't expect U.S. debt default

-- Jim Puzzanghera

Photo: Moody's Investor Services offices in New York. Credit: Reuters. 

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