Update 7/15: S&P has joined Moody's in issuing new warnings to the United States. Putting the country on "negative watch," S&P warned that it could downgrade U.S. debt before the August 2nd deadline.
Today, Moody's announced that they are currently reviewing the United States' credit rating given the current stalemate in negotiations over raising the debt limit. The small but growing likelihood of lawmakers failing to increae the debt limit on time has prompted them to prepare for potentially downgrading the United States. In a statement today, Moody's said:
The review of the U.S. 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. As such, there is a small but rising risk of a short-lived default. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate.
With the August 2nd deadline approaching, policymakers must raise the debt limit as soon as possible to reassure creditors and credit rating agencies that we will not default on our debt. At the same time, policymakers should use this moment to begin addressing our fiscal challenges.