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Moody's to review US triple-A debt rating Moody's to review US triple-A debt rating
(about 1 hour later)
Ratings agency Moody's has said it may cut the US AAA debt rating, citing the "rising possibility" the US will default on its debt obligations.Ratings agency Moody's has said it may cut the US AAA debt rating, citing the "rising possibility" the US will default on its debt obligations.
The agency warned the likelihood the US would fail to raise its statutory debt limit in time to avert default was "low" but not "de minimis".The agency warned the likelihood the US would fail to raise its statutory debt limit in time to avert default was "low" but not "de minimis".
The US has surpassed its debt limit, but Congress and President Barack Obama remain at odds over how to raise it. It came as a fourth day of cross-party talks in Washington on the debt limit were said to have ended stormily.
Ongoing cross-party talks in Washington ended on Wednesday without a deal. President Barack Obama reportedly told a top Republican: "Enough is enough."
Also on Wednesday, Federal Reserve chief Ben Bernanke said a default would send shockwaves through the entire financial system. He made the remark while heatedly rejecting Republican House Majority Leader Eric Cantor's call for a short-term deal based on spending cuts, according to Democratic officials and Republican aides familiar with the talks.
He said the Fed would renew stimulus efforts if the economy remained weak. 'Rising default risk'
'Small but rising risk' The tricky negotiations are due to resume on Thursday.
President Obama needs the Republican-led House of Representatives and Democratic-held Senate to sign off a deal to close the US deficit, while allowing Washington to borrow past a 2 August deadline.
He has said he is willing to countenance cuts to social safety-net programmes dear to Democrats, as long as there are tax rises for the rich.
Republicans have rejected the latter proposal, saying that would stifle investment and job growth.
Moody's became the first of the big three ratings agencies - the others being Standard & Poor's and Fitch - to place the US's triple-A rating on review for a possible downgrade.Moody's became the first of the big three ratings agencies - the others being Standard & Poor's and Fitch - to place the US's triple-A rating on review for a possible downgrade.
"The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes," Moody's said."The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes," Moody's said.
"As such, there is a small but rising risk of a short-lived default.""As such, there is a small but rising risk of a short-lived default."
The US hit its $14.3 trillion (£8.9 trillion) debt ceiling on 16 May, but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating.The US hit its $14.3 trillion (£8.9 trillion) debt ceiling on 16 May, but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating.
When it came to the crunch in the past, Congress regularly voted to raise the debt ceiling, giving government access to the cash it needed.When it came to the crunch in the past, Congress regularly voted to raise the debt ceiling, giving government access to the cash it needed.
This year, however, newly empowered Republicans have demanded steep cuts in government spending in return for raising the limit.This year, however, newly empowered Republicans have demanded steep cuts in government spending in return for raising the limit.
Mr Obama has proposed a package of up to $4 trillion in budget deficit reduction over the next 10 years, but Republicans have rejected that and other proposals because they call for raising additional tax revenue. Mr Obama has proposed a package of up to $4 trillion in budget deficit reduction over the next 10 years, but Republicans have rejected that and other proposals because it calls for raising taxes.
'Prepared to respond' New stimulus?
Earlier on Wednesday, Fed chairman Mr Bernanke gave his semi-annual monetary policy report to members of Congress. Earlier on Wednesday, Federal Reserve chairman Ben Bernanke said a default would send shockwaves through the entire financial system.
He said the Fed would renew stimulus efforts if the economy remained weak.
The Fed's second quantitative easing programme (QE2) ended two weeks ago, and there has been much speculation about whether a QE3 programme is on the cards.The Fed's second quantitative easing programme (QE2) ended two weeks ago, and there has been much speculation about whether a QE3 programme is on the cards.
"Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," Mr Bernanke said. Giving his semi-annual monetary policy report to members of Congress, Mr Bernanke said: "Given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate."
"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate."
He also said the US could expect only "moderate" growth over the coming quarters.He also said the US could expect only "moderate" growth over the coming quarters.
He added that the inflation pressures seen in the first half of 2011 were "transitory" and should ease.
Mr Bernanke cited higher commodity prices and the earthquake in Japan, which led to parts shortages and drove up vehicle prices, as reasons that inflation picked up.
The Fed expects to keep its ultra-low interest rate policy in place "for an extended period", he said.The Fed expects to keep its ultra-low interest rate policy in place "for an extended period", he said.
Revised forecasts
The dollar extended earlier losses against the euro following Mr Bernanke's comments, with the euro rising more than a cent to $1.4088.The dollar extended earlier losses against the euro following Mr Bernanke's comments, with the euro rising more than a cent to $1.4088.
He added that Fed forecasts for June, which had already been significantly revised down from April, had not incorporated recent data such as last week's employment report.He added that Fed forecasts for June, which had already been significantly revised down from April, had not incorporated recent data such as last week's employment report.
That data showed job creation all but halted last month, with only 18,000 new jobs created, and the unemployment rate rising to 9.2%.That data showed job creation all but halted last month, with only 18,000 new jobs created, and the unemployment rate rising to 9.2%.
Analysts said that Mr Bernanke had only raised the possibility of a further stimulus, and was not saying that it was necessary.Analysts said that Mr Bernanke had only raised the possibility of a further stimulus, and was not saying that it was necessary.
"In general, Bernanke's testimony has not changed our view that monetary policy is on hold," said Dana Saporta, economist at Credit Suisse in New York.
"The hurdle for a QE3 is too high right now, but if the European peripheral crisis intensifies, further policy accommodation might be considered."