Moody’s Warns of Credit Downgrade if Congress Doesn’t Address Deficit

Moody’s Investors Service announced Thursday that a compromise to avoid the “fiscal cliff” is not enough to protect the nation’s AAA rating, calling for further action from policymakers.

It said a deal over raising the debt limit, which could include new spending cuts, tax hikes and entitlement reforms, could determine whether the nation’s credit rating is downgraded.

“The debt trajectory resulting from this process is likely to determine whether the Aaa rating is returned to a stable outlook or downgraded to Aa1,” the agency said.

The Treasury Department said the U.S. reached its $16.4 trillion debt limit on Dec. 31, but that extraordinary measures can be taken for roughly the next two months to keep paying the nation’s bills.

The credit rater said the deal hammered out by Congress and the White House on taxes is merely a first step, and the U.S.’s credit rating could be affected “negatively” if Washington fails to take further steps to rein in the deficit. In fact, it said it was “necessary” for policymakers to adopt further measures to bring down the deficit to keep the U.S. rating intact.

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