Stock Groups

U.S. expected to raise debt limit, avoid default


© Reuters. FILE PHOTO – The U.S. Capitol Building dome is visible as the sun sinks on Capitol Hill, Washington, U.S.A, July 26, 2019. REUTERS/Erin Scott/File Photo

(Reuters] – Moody’s Investors Service stated on Tuesday that it had a stable outlook on America’s Aaa rating. This reflects their view that the United States would increase its debt limit, and still meet all its debt service obligations.

Janet Yellen, U.S. Treasury Secretary has warned the government that it could run out cash before Oct. 18, if the debt limit isn’t raised or suspended. This would make it its first default. In July, the two-year suspension of debt ceiling was lifted. However, Congress Democrats and Republicans are still at odds about whether it should be extended or raised.

“At this stage, given Republicans’ staunch refusal to vote to suspend or raise the debt limit, we expect that Democrats will likely reach an agreement within their own party to raise the debt limit through the budget reconciliation process, which requires only a simple majority of Democratic votes in the Senate (50 senators and the vice president), in time to avoid a default,” the credit rating agency said in a report.

Moody’s stated that if this limit is not increased, it thinks the government will prioritise debt payments to “preserve the full faith credit of the U.S.government and avoid major disruptions in global financial markets.” Moody’s estimated that the U.S. will be paying interest payments totaling approximately $4 billion by Oct. 15, $14 Billion on Nov. 1 and $49Billion on Nov. 15. A missed payment would result in a default.

“Generally speaking, that would be inconsistent with an Aaa rating. We would most likely downgrade Treasury securities’ ratings, barring exceptional circumstances.

It said that there were “attentive circumstances”.

The impact on U.S. sovereign credit rating and profile is likely to be minimal. Moody’s stated that its ratings are based on expected losses on U.S. debt. A U.S. default was presumed to be temporary and treated with a 100% recovery rate.

Disclaimer Fusion MediaThis website does not provide accurate and current data. CFDs include stocks, indexes and futures. Prices are provided not by the exchanges. Market makers provide them. Therefore, prices can be inaccurate and differ from actual market prices. These prices should not be used for trading. Fusion Media is not responsible for trading losses that may be incurred as a consequence of the use of this data.

Fusion MediaFusion Media and anyone associated with it will not assume any responsibility for losses or damages arising from the use of this information. This includes data including charts and buy/sell signal signals. You should be aware of all the potential risks and expenses associated with trading in the financial market. It is among the most dangerous investment types.