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Moody's to review US triple-A debt rating Moody's to review US triple-A debt rating
(about 6 hours later)
  
Ratings agency Moody's has said it may cut the US AAA debt rating, citing the "rising possibility" the US could 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 could 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 insignificant.The agency warned the likelihood the US would fail to raise its statutory debt limit in time to avert default was low but not insignificant.
It came as a fourth day of cross-party talks in Washington on the debt limit were said to have ended stormily. It came as a fifth day of cross-party talks loomed in Washington after a bad-tempered end to Wednesday's meeting.
US Fed chief Ben Bernanke said a default would cause a "major crisis". US Fed chief Ben Bernanke has said a default would cause a "major crisis".
Speaking before Congress on Wednesday, the Federal Reserve chairman warned it "would send shockwaves through the entire financial system". Emotions were on the rise on Capitol Hill on Thursday, as Senate Majority Leader Harry Reid, a Democrat, took to the Senate floor to denounce House Republican Leader Eric Cantor.
As tough negotiations continue at the White House about raising the debt limit, President Barack Obama reportedly told a top Republican: "Enough is enough." During talks on Wednesday evening, Mr Cantor reportedly told President Barack Obama that revenue increases simply were not going to happen, and urged him to accept a short-term deal instead of a budget that would carry through to the presidential election in November 2012.
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. That brought a strong reaction from Mr Obama, who reportedly said: "Enough is enough. ... I'll see you all tomorrow," before leaving the room.
'Rising default risk''Rising default 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.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.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.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 it calls for raising taxes.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.
New stimulus? 'Childish'
In his testimony to Congress, Mr Bernanke said the Fed would renew stimulus efforts if the economy remained weak. In the Senate on Thursday Mr Reid called Mr Cantor "childish" and said he should not be part of debt negotiations any longer.
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. Mr Reid said that while some Republican leaders were willing to "negotiate in good faith", Mr Cantor "has shown he shouldn't even be at the table".
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." Meanwhile, Mr Cantor, Mr Obama and other congressional leaders are scheduled to resume talks on Thursday afternoon.
He also said the US could expect only "moderate" growth over the coming quarters. On Wednesday at the White House, President Obama was said to have demanded that budget negotiators find common ground by the end of the week.
He made the remark while heatedly rejecting Mr Cantor's call for a short-term deal based on spending cuts, according to Democratic officials and Republican aides familiar with the talks.
In testimony to Congress on Wednesday, Mr Bernanke said the Fed would renew stimulus efforts if the economy remained weak.
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.
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.
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.