Moody’s moves one step closer to downgrading U.S. debt

Moody’s Investors Service said Wednesday it has put the U.S. government’s top-notch credit rating on review for a possible downgrade because of the risk that Washington will not raise the federal debt ceiling in time to avoid a default.

The firm added that even a brief failure of the government to pay its bills would mean that the United States’s Aaa rating “would likely no longer be appropriate.”

The announcement comes after Standard & Poor’s, another of the major credit rating agencies, has said that it would dramatically downgrade the U.S. government’s credit rating if payments were missed.

The U.S. has long been able to borrow money cheaply because global investors believe the government can be counted on to repay its debts. If credit rating agencies downgrade the U.S. and investors lose their faith in the creditworthiness of the government, the cost of borrowing money — in other words, the interest rate — could rise.

A senior Treasury Department official pointed to the Moody’s announcement as evidence that Congress needs to act to raise the debt ceiling.

“Moody’s assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country’s obligations and agree upon a substantial deficit reduction package,” said Jeffrey A. Goldstein, the Treasury undersecretary for domestic finance, in a statement.