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Moody's Upgrades U.S. Credit Rating Outlook To 'Stable'

Moody's Upgrades U.S. Credit Rating Outlook To 'Stable'
7/18/2013 11:17 PM ET

Moody's Investors Service on Thursday upgraded the outlook on its triple-A rating on the United States to 'stable' from 'negative', citing improvement in the federal government's debt trajectory.

The 'negative' outlook has been in place since August 2011. Moody's, at the same time, affirmed the country's sovereign rating at 'Aaa'.

"The action reflects Moody's assessment that the federal government's debt trajectory is on track to meet the criteria laid out in August 2011 for a return to a stable outlook, removing the downward pressure on the rating over Moody's outlook period," the agency said in a statement.

It noted that the budget deficits have been declining and are expected to continue to decline over the next few years.

The growth of the U.S. economy, while moderate, is currently progressing at a faster rate compared with several Aaa peers, Moody's said. The economy has also demonstrated a degree of resilience to significant reduction in government spending, according to the agency.

Therefore, Moody's said, the debt-to-GDP ratio through 2018 will demonstrate a more pronounced decline than had anticipated when 'negative' outlook has been assigned.

However, Moody's warned that, without further fiscal consolidation efforts, government deficits may increase once again over the longer term and this situation could put the rating again under pressure.

"Downward pressure on the US's Aaa rating could develop, if economic growth does not pick up and the government debt trajectory continues in an upward direction," it said.

The Congressional Budget Office (CBO) expects the budget deficit to decline to 4 percent of GDP in 2013 fiscal year from 7 percent in 2012. Even without any further policy measures, the deficit is seen falling further to 3.4 percent in 2014 and to 2.1 percent in 2015, and to remain below 3 percent for the following four years.

The debt-to-GDP ratio is forecast to peak at 76 percent in 2014 and subsequently decline by five percentage points by 2018.

Last month, Standard & Poor's raised its outlook on the U.S. to 'stable' from 'negative'. S&P stripped U.S. of its top notch rating in August 2011 and now rates the sovereign at 'AA+'. Though Fitch Ratings maintains a 'negative' outlook on the U.S., it still has a triple-A rating for the sovereign.

by RTT Staff Writer

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