(Forexlive) – The following is the text of a statement Tuesday by rating agency Moodyâ€™s:
Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the US governmentâ€™s Aaa rating and negative outlook, says Moodyâ€™s Investors Service in the report â€œUpdate of the Outlook for the US Government Debt Rating.â€
If those negotiations lead to specific policies that produce a stabilization 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, says Moodyâ€™s.
If those negotiations fail to produce such policies, however, Moodyâ€™s would expect to lower the rating, probably to Aa1.
Moodyâ€™s views the maintenance of the Aaa with a negative outlook into 2014 as unlikely. The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilization involved a large, immediate fiscal shocksuch as wouldoccur if the so-called â€œfiscal cliffâ€ actually materializedwhich could lead to instability. Moodyâ€™s would then need evidence that the economy could rebound from the shock before it would consider returning to a
Moodyâ€™s notes that it is difficult to predict when during 2013 Congress will conclude negotiations that result in a budget package. The Aaa rating, with its negative outlook, is likely to be maintained until the outcome of those negotiations becomes clear.
The rating outlook also assumes a relatively orderly process for the increase in the statutory debt limit, says Moodyâ€™s. The debt limit will likely be reached around the end of this year, and the governmentâ€™s ability to meet interest and other expenses out of available resources would likely be exhausted within a few months after the limit is reached.
Under these circumstances, the governmentâ€™s rating would likely be placed under review after the debt limit is reached but several weeksbefore the exhaustion of the Treasuryâ€™s resources. Moodyâ€™s took a similar action during the summer of 2011.