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US Bond Rating Could be Cut by Moody’s

On Tuesday, Moody’s Investors Service that it likely will cut its “Aaa” rating for U.S. government debt, likely by one notch, if negotiations fail when it comes to the budget. Beginning on January 1, spending cuts and tax increases totaling $600 billion will take effect if a deal is not reached on the budget by Congress. This incident has been called ‘the fiscal cliff’ because the economy could return to a recession and increase unemployment.

The outlook on U.S. debt was dropped to ‘negative’ by Moody’s one year ago as a warning that the rating could be downgraded. At the same time, Standard & Poor’s dropped the ‘AAA’ rating of the government for bonds. Also issuing a warning for a possible downgrade was that of Fitch Ratings.

Moody’s said that it will hold onto its current ‘negative’ warning and current rating before making a decision. Moody’s will not make a decision until the budget talk outcome is decided. In the report, analyst Steven A. Hess from Moody’s said, “Under these circumstances, the government’s rating would likely be placed under review after the debt limit is reached, but several weeks before the exhaustion of the Treasury’s resources.”

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When Moody’s issued its warning in August of 2011, the stock market plummeted but this time around traders were not deterred by the report.

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