Moody's Investors Service expects the ongoing standoff over raising the U.S. debt limit to be resolved in time to avoid the nation defaulting on any bills, but says a downgrade is coming if the Treasury Department fails to make its $2 billion interest payment due June 15.
"That's a really important date for us," Moody's senior vice president William Foster told Bloomberg in an interview Wednesday. Even failing to make a small payment means a ding is coming, he explained, adding, "if it was missed, that's a default. We'd downgrade the rating by one notch from AAA to AA1."
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The outlet noted Foster "emphasized" that the ratings agency anticipates the Biden administration and Republicans in Washington will reach a deal in time to avert what would be the first default in U.S. history, and Moody's still holds a stable outlook on the nation's AAA rating, for now.
But time is running low.
Treasury Secretary Janet Yellen has warned repeatedly that default could happen as early as June 1, meaning just days remain for the White House and GOP lawmakers to come to an agreement on raising the debt limit in what has been a prolonged political battle between Republicans, who control the House, and President Biden and his fellow Democrats, who control the Senate.
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The situation led credit ratings agency Fitch Ratings this week to place the U.S.'s AAA rating on negative watch, pointing to "increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date."
Fitch also said it expects an agreement to be reached in time to avoid any missed payments, but the analysts wrote they "believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations."
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FOX Business' Greg Wehner and Megan Henney contributed to this report.
