America risks losing its triple-A credit rating unless swift and significant progress is made over its debt ceiling, Moody's has warned, piling fresh pressure on the US a few hours before crucial employment data is released. The ratings agency is concerned by the lack of progress made by the US Treasury and Congress over whether to allow the US national debt to increase. It said that the risk of the US defaulting on its loans was "very small but rising", suggesting that the country might not deserve its AAA rating. "Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations," the agency said. "The heightened polarisation over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review." Under US law, the country's national debt may not exceed $14.3 trillion (£8.75tn). That figure was reached last month, forcing America to dip into two government pension schemes to service its debts. That, though, will only tide the US over until the start of August.
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Friday, June 3, 2011
America risks losing its triple-A credit rating unless swift and significant progress is made over its debt ceiling, Moody's has warned, piling fresh pressure on the US a few hours before crucial employment data is released. The ratings agency is concerned by the lack of progress made by the US Treasury and Congress over whether to allow the US national debt to increase. It said that the risk of the US defaulting on its loans was "very small but rising", suggesting that the country might not deserve its AAA rating. "Although Moody's fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations," the agency said. "The heightened polarisation over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review." Under US law, the country's national debt may not exceed $14.3 trillion (£8.75tn). That figure was reached last month, forcing America to dip into two government pension schemes to service its debts. That, though, will only tide the US over until the start of August.
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President Obama has been locked in talks with members of Congress in recent days, in an attempt to reach agreement to raise the ceiling. The Republican party is demanding massive spending cuts in return, and the two sides have made little progress.
Moody's is the second ratings agency to warn recently that America's credit rating may be on shaky ground. In April, Standard & Poor's cut its outlook on the US to "negative", warning that it needs a more credible long-term plan to lower its deficit.
The US economy will be under close scrutiny on Friday afternoon when the monthly non-farm payroll is published. This will show how many new jobs were created in America during May, excluding its volatile agricultural sector.
A separate study, released on Wednesday, showed that there were fewer new hires than expected in the private sector last month, prompting economists to slash their non-farm predictions. The consensus forecast is for an increase of 150,000 jobs, down from 180,000 earlier in the week, although Goldman Sachs expects the non-farm payroll to increase by just 100,000 jobs. A low number would add to fears that the US recovery is entering a soft patch, with its manufacturing sector suffering the weakest growth in nearly two years.
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