Moody’s Investor Services (MCO) will warn the U.S. government on Monday of a possible future downgrade of its triple-A credit rating, citing public finances.
According to FT, Moody’s will state that unless the U.S. gets its public finances into better shape than the Obama administration’s current budget plan projects there would be “downward pressure” on its ability to retain the top credit-rating status.
Pierre Cailleteau, head of sovereign ratings at Moody’s, said: [FT] “The size of debt makes the U.S. vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”
The credit ratings agency projects that if there is no credible medium-term plan to reduce spending and the elevated levels of debt, the interest payment on U.S. borrowing (a downgrade could significantly increase the government’s interest bill) will grow to more than 15% of government revenues, making the fiscal situation going forward even more dangerously insecure than it appears at first glance.
Moody’s however, reiterates that there is no immediate risk of a U.S. downgrade because the country’s federal debt affordability has for the time being not deteriorated despite its rising deficit.
The U.S. has said it will set up a National Commission on Fiscal Responsibility and Reform which will be responsible for improving the fiscal situation in the medium term and achieve fiscal sustainability over the long run, but Moody’s said that [WSJ]: “the politics” of implementing any suggestions “remain uncertain.”