Credit rating agency Moody’s has warned that the United States may lose its top-notch credit rating in the next few weeks if politicians fail to increase the country's debt ceiling, forcing the government to miss debt payments.
Moody's is the first of the big three rating agencies to place the US Aaa rating on review for a possible downgrade, which means it is close to cutting its rating.
In a statement, Moody's said it saw a ‘rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations’.
A lower US credit rating would cause havoc in financial markets around the world and increase borrowing costs for the US government and businesses, further harming US public finances and affecting its economic recovery.
Risks of a default on Treasuries, traditionally seen as the world's safest investment, have increased since the US government reached its legal debt limit of $14.294 trillion on May 16. Congressional leaders and President Barack Obama are locked in tense negotiations to raise the limit by August 2.
In April, another rating agency Standard & Poor's placed the US rating on negative outlook, which means a downgrade is likely in 12-18 months.
The US Congress has routinely raised the nation's debt limit in the past. This time, however, negotiations seem to have stalled over the balance between raising taxes and cutting spending.
So far, Treasury Secretary Timothy Geithner has been able to resort to extraordinary measures to delay a debt default by at least August 2.
Unlike Fitch, which promised to cut the US ratings to ‘restricted default’ after a few missed debt payments, Moody's has said it would downgrade the US to the Aa range, still considered investment grade.