Moody’s Investors Service (MCO) confirmed the U.S. government’s triple-A bond rating after lawmakers reached a deal to raise the debt ceiling by $900 billion in the short-term and another $1.2 trillion to $1.5 trillion. President Obama signed the deal into law Tuesday, just hours before a deadline set by the Treasury. But Moody’s warned the U.S. is not out of the woods just yet. The ratings agency assigned the U.S. government’s bond rating a negative outlook, saying a downgrade could occur if fiscal discipline weakens in the coming year. If additional fiscal consolidation measures are not adopted in 2013, the economic outlook deteriorates or there is an appreciable rise in the U.S. government’s funding costs, a downgrade is still possible. Moody’s affirmed the triple-A rating after lawmakers and the president signed off on a two-pronged debt reduction and debt ceiling deal. The first prong includes raising the debt ceiling by $900 billion and making close to $1 trillion in spending cuts. To complete the second prong, a committee of lawmakers will go back to Washington and search for $1.5 trillion in cuts before the ceiling is raised again. Moody’s said the deal, which includes a trigger for $1.2 trillion in automatic spending cuts if lawmakers fail to find $1.5 trillion in cuts on their own, is a “step toward achieving the long-term fiscal consolidation needed to maintain the U.S. government debt metrics within the triple-A parameters over the long run.” Even still, Moody’s expressed concerns, saying the deficit reduction committee and triggers are designed to induce fiscal discipline, but remain untested in a real world scenario. “Should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively,” Moody’s said. Write to Kerri Panchuk.
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