By Simon Miller

Budget negotiations will decide the US's credit rating according to a research note from Moody's Investor Services.

In the note, the ratings agency said that negotiations in the 2013 Congressional legislative session would "likely determine the direction of the US government's Aaa rating and negative outlook".

The note added: "If those negotiations lead to specific policies that produce a stabilisation and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable."

However, Moody's warned that a failure to produce such policies could lead to a lower rating - probably Aa1.

Moody's views the maintainance of the Aaa with negative outlook into 2014 as unlikely unless a methods was adopted to achieve debt stabilisation involved a "large, immediate fiscal shock - such as would occur if the so-called 'fiscal cliff' actually materialised".

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