Moody’s, Fitch Comment on U.S. AAA Rating

Over the past 24 hours, Moody’s and Fitch released reports on the United States’ AAA rating in light of the agreement to raise the nation’s debt ceiling.

Unfortunately, the rating agencies’ comments offered little that the markets did not already know, and suggested that these firms are under considerable political pressure to not downgrade the U.S.

Moody’s Investors Service affirmed the U.S.’s AAA credit rating, but issued a negative outlook, which indicates an increased likelihood of a downgrade in the future.

In a statement, Moody’s noted that “The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2 trillion to $1.5 trillion by year-end have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa.”

Moody’s also stated that the debt ceiling deal marks the initial step in the process of long-term fiscal consolidation that is crucial to maintaining AAA rating.  The ratings agency noted that the negative outlook signals that the U.S. remains at risk of a downgrade if its fiscal situation and economic outlook continue to worsen.

Fitch largely offered the same perspective as Moody’s.  Based on the agreement to raise the debt ceiling, any risk of sovereign default “commensurate with the AAA rating” is very low.

“While the agreement is clearly a step in the right direction,” Fitch wrote, “the U.S., as in much of Europe, must also confront tough choices on tax and spending against a weak economic backdrop if the budget deficit and government debt is to be cut to safer levels over the medium term.”

Standard & Poor’s (S&P), the other large rating agency, has yet to comment on the debt ceiling deal.