Even if the United States manages to avoid a technical default in August, downward pressure on its AAA credit rating will likely remain high, Moody's analyst Steven Hess said on Wednesday.
Moody's will likely slap a negative outlook on its United States' ratings in the next few weeks if Washington fails to agree on a long-term budget deal that puts the country's debt on a downward path, Hess told Reuters in an interview.
The fact that they haven't come to an agreement on the debt ceiling indicates to us that the outcome of the negotiations of the long-term debt situation may not be very positive, Hess said.
Moody's on Wednesday placed the United States' credit ratings on review for a possible downgrade on increasing risk that the government may miss debt payments in August if lawmakers fail to increase the country's debt ceiling.
Moody's intends to conclude that review as soon as it becomes clear whether a technical default may be avoided. At that time, it will also reassess whether the United States deserves to retain a stable outlook on its ratings, based on the budget deal negotiated between Democrats and Republicans.
We're willing to wait and see what the outcome for the negotiations is, Hess said. If they show significant progress in an agreement on the budget that reverses the upward debt trajectory, we would consider having the outlook assigned as stable.
So far only Standard & Poor's has revised to negative the outlook on U.S. ratings, which means a downgrade is likely in 12 to 18 months.
(Editing by Leslie Adler)