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