Moody's Investors Service today threatened to put the U.S. credit rating under review for a possible downgrade if the White House and Congress fail to make progress on increasing the debt limit in the coming weeks, “due to the very small but rising risk of a short-lived default.”
The agency said that the outcome will depend on how negotiations on deficit reduction proceed.
”A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating,” read the company press release.
Moody’s added that its analysts did not anticipate this process — of the White House and Congress coming to an agreement on deficit reduction while agreeing to raise the detail ceiling — being so difficult.
“(T)he degree of entrenchment into conflicting positions has exceeded expectations,” the Moody’s statement said. “The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review.”
The Obama administration said that the Moody’s threat backs its position.
Mary Miller, Assistant Secretary of the Treasury for Financial Markets, said in a statement that the move “simply underscores the need for Congress to move quickly to ensure that the US can meet all of its obligations, while continuing to work on a consensus approach towards long term fiscal balance."
Republicans argued that the threat backed their position since much of the report focused on using this opportunity to get significant deficit reduction.
"This report reinforces the point Republicans have been making all year: an increase in the debt limit without major spending cuts will hurt our economy and destroy jobs,” said House Speaker John Boehner, R-Ohio, in a statement. "This report makes clear that if we let this opportunity pass without real deficit reduction, America’s financial standing will be at risk. A credible agreement means the spending cuts must exceed the debt limit increase. The White House needs to get serious right now about dealing with our deficit and debt."
- Jake Tapper
UPDATE: This post has been updated to include the statement from House Speaker John Boehner