Moody's says it expects the U.S. government will continue to pay its debts on time, but has warned that public statements from lawmakers during the debt ceiling negotiations could prompt a change in its assessments of the U.S. credit outlook before a potential default.
Moody's currently has an "Aaa" rating for the U.S. government with a stable outlook
- expects an eventual agreement on raising the borrowing cap
- is bracing for protracted negotiations and potential temporary solutions
- U.S. government would be considered in default if it missed debt payments, which would trigger a downgrade by the ratings agency by one notch to "Aa1."
But, says Moody's, it could take action before a default by changing its outlook on the U.S. government to negative from stable if lawmakers indicated that a default is expected.
A change in outlook would reflect a material increase in the probability of a downgrade. "Circumstances like that could be if public messaging from both sides or from the lead negotiators was indicating that they're seriously contemplating default, and that they're comfortable that this is a viable option," William Foster, a senior vice president at Moody’s, said.
