The Financial Times is reporting today that credit ratings agency Moody's is considering stripping the United States of its AAA credit rating. Why they are making such a threat might, but shouldn't, be a surprise.
The comments made clear that a deal to avert the so-called “fiscal cliff” - a series of tax increases and automatic spending cuts due in early January - may not be enough to prevent a downgrade, and that a broader agreement to shrink America’s debt pile over the medium term would need to be crafted.
Budget negotiations next year “will likely determine the direction of the US government’s Aaa rating”, Moody’s said, adding that it may cut the country’s rating to Aa1 if the results were not satisfactory. “What we’re looking for is a downward trajectory of the debt over the medium term,” said Steven Hess, lead analyst for the US sovereign rating at Moody’s in New York.