Congress is not likely to reach an agreement to pass any significant deficit reduction measures before the November 2012 presidential election. However, Moody’s Investors Service (NYSE:MCO) says a failure to agree on $1.5 trillion in budget deficit cuts would not be a “decisive” factor in the review of the United States’ AAA rating.
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Investors are focused on Moody’s assessment of the United States because the agency could be the second to downgrade the country. The political “super committee” needs to break an impasse between Republicans and Democrats to reach a deal by Nov. 23 to reduce the U.S. budget deficit by at least $1.2 trillion. Beginning in 2013, automatic spending cuts of $1.2 trillion will be triggered if a majority of the 12-member committee fails to agree on a plan.
Moody’s said a reform in entitlement programs would be more positive for the U.S. rating than just caps in discretionary government spending. Moody’s also said the United States’ economic growth outlook also needs to be taken into account in the rating decision.
“Moody’s expects the U.S. economy to grow between 1.5 percent and 2.5 percent in 2012. Major deviations from that course could also impact the rating,” according to Reuters.