(Bloomberg News) The U.S. may lose its top credit rating from Moody's Investors Service unless lawmakers are able to reduce the percentage of debt to gross domestic product during budget negotiations next year.
Moody's, which placed a negative outlook on the U.S.'s Aaa grade in August, said in a statement today that the rating would likely be cut to Aa1 if negotiations fail to produce such policies. Plans that produce a stabilization and then downward trend in the ratio over the medium term will likely lead to an affirmation of the rating.
The U.S. is on course for a so-called fiscal cliff in which tax cuts enacted under President George W. Bush to expire at the end of this year and for more than $1 trillion of automatic spending reductions to take effect in January.
"The maintenance of the Aaa with a negative outlook into 2014" is unlikely, Moody's said today in the statement. That outlook would only be extended if a " 'fiscal cliff' actually materialized-which could lead to instability. Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook."
Standard & Poor's downgraded the U.S. on Aug. 5, 2011, and has said political and fiscal risks may lead to another downgrade. Fitch Ratings rate America at AAA with a negative outlook.