U.S. Credit Rating Unlikely to Change in 2012, Moody’s Hess Says

The U.S.’s Aaa credit ranking from Moody’s Investors Service is unlikely to change this year amid the presidential election and potential for a wave of tax increases and spending cuts to take effect, according to Steven Hess, Moody’s senior credit officer.

The rating company placed a negative outlook on the top grade in August when the U.S. raised the debt ceiling after months of political wrangling about the deficit. The U.S. is on course for tax cuts enacted under President George W. Bush to expire at the end of this year and for more than $1 trillion of automatic spending reductions to take effect in January.

“We are most likely going to wait until the outcome of all of this to see what the fiscal trajectory looks like,” Hess said today in Montreal in an interview.

House Speaker John Boehner last month revived Republicans’ insistence that any increase in the nation’s debt limit be matched by at least as much in spending cuts, positioning his party for a renewed standoff with Democrats about the federal budget.

Last summer’s borrowing-limit debate was cited by Standard & Poor’s as among the reasons it cut the U.S. to AA+ on Aug. 5. The company has said political and fiscal risks may lead to another downgrade.

’Debt Trajectory’

“The long-term debt trajectory of the U.S. government is the central issue,” New York-based Hess said. Higher taxes and reduced spending in 2013 according to current law “would be a huge increase in revenues for the governments if it were to happen, but it will kick in and also seriously affect economic growth in 2013.”

Treasuries have gained 5.9 percent since S&P downgraded the U.S., according to Bank of America Merrill Lynch index data. Intercontinental Exchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has climbed 10.1 percent during that span. Yields on U.S. government 10-year debt touched 1.44 percent on June 1, the lowest ever.

The government will likely approach its $16.4 trillion legal cap on borrowing close to the end of this year. A temporary reduction in the Social Security payroll tax will also run out at the end of 2012, as will extended unemployment benefits.

“The debt ceiling always gets raised, one way or another,” Hess said. “The political configuration now is such that they are using this as a tool to get other things done on their political agenda. The debt limit per se is not a significant issue in our negative outlook on the U.S. rating.”

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net