Moody’s warns may cut triple-A US debt rating

NEW YORK—Ratings agency Moody’s said Wednesday that it was placing the United States’s triple-A debt rating on a downgrade watch because of rising prospects the US debt limit will not be raised in time to avoid default.

“The review of the US government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default,” Moody’s said in a statement.

Moody’s recalled that it had announced on June 2 that a rating would be likely “in mid-July unless there was meaningful progress in negotiations to raise the debt limit.”

“Moody’s considers the probability of a default on interest payments to be low but no longer to be de minimis,” the agency said.

The action came as US President Barack Obama and Democratic lawmakers and their opposition Republican counterparts were holding a fourth straight day of talks Wednesday to try to hammer out an agreement on a deficit-reduction budget.

Republicans are refusing to lift the country’s $14.29 trillion debt ceiling without deep government spending cuts; they reject additional tax increases sought by Democrats.

The stalemate in Congress is threatening to push the US into the possibility of defaulting on its obligations by August 2, according to Treasury estimates.

The US hit the debt ceiling on May 16 but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impact on government obligations.

The US Treasury Department reacted swiftly to the Moody’s warning.

“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.”