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Moody's set to downgrade US without budget deal

Moody's set to downgrade US without budget deal

September 11th, 2012 in News

NEW YORK (AP) - The U.S. government's debt rating could be heading for the "fiscal cliff" along with the federal budget.

Moody's Investors Service on Tuesday said it would likely cut its "Aaa" rating on U.S. government debt, probably by one notch, if budget negotiations fail.

If Congress and the White House don't reach a budget deal, about $1.2 trillion in spending cuts and tax increases will automatically kick in starting Jan. 2, a scenario that's been dubbed the "fiscal cliff," because it is likely to send the economy back into recession and drive up unemployment.

A year ago, Moody's cut its outlook on U.S. debt to "negative," which acts as a warning that it might downgrade the rating, after partisan wrangling over raising the U.S. debt limit led the nation to the brink of default.

Rival agency Standard & Poor's took the drastic step of stripping the government of its "AAA" rating on its bonds on Aug. 5, 2011. Fitch Ratings issued a warning of a potential downgrade.

In its report Tuesday, Moody's said it is difficult to predict when Congress will reach a deal on the budget, and it will likely keep its current rating and "negative" outlook until the outcome of the talks is clear.