In the wake of Standard & Poor's decision to downgrade the U.S. credit rating, fellow ratings agency Moody's repeated a warning on Monday that it could downgrade U.S. debt by 2013 if the country's economic outlook worsens.
"For the Aaa rating to remain in place, we would look for further measures that would result in the ratio of federal government debt to GDP, for example, peaking not far above the projected 2012 level of near 75 percent by the middle of the decade and then declining over the longer term," Moody's analyst Steven Hess wrote in a report obtained by Reuters.
The report went on to say that the recent debt-ceiling deal suggests that there is the potential in Washington for further deficit reduction.
"Last week's agreement suggests that coming to an agreement that would meet this criterion by early 2013 will be challenging, given the political polarization, but not necessarily impossible."
The report argues that the U.S. "continues to exhibit the characteristics compatible with a Aaa rating" and that while "this status could be threatened if further measures to address the long-term fiscal situation are not adopted… it is early to conclude that such measures will not be forthcoming."
Moody's first confirmed the U.S.'s AAA credit rating on August 2, saying that the debt deal "virtually eliminated" the risk of a default. But in doing so the agency also lowered its rating outlook to "negative."
Standard and Poor's announced its decision to lower the U.S. rating to AA+ on Friday, sparking global concern. The New York Times reports that the move is "almost sure" to increase pressure on a new Congressional "supercommittee" that will be tasked with putting together a package of deficit reduction measures.
“I think this is one of the most telling, important moments in our country’s history right now,” Senator John Kerry Sunday on the NBC program “Meet the Press," according to the Times. “This poses a set of choices not just about a recession. It’s about a financial crisis and the structure of our economy, which really has been misallocating capital.”
European indexes all opened lower on Monday. But the markets rallied following news that the region’s central bank was buying Spanish and Italian bonds.
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