US should raise debt limit and avoid default – Moody’s

Oct. 5 (Reuters) – Moody’s Investors Service said on Tuesday that the stable outlook for the United States’ Aaa rating reflected its view that the country would increase its debt limit and continue to meet its obligations under the service debt on time.

U.S. Treasury Secretary Janet Yellen has warned the government could run out of liquidity by October 18 if the debt ceiling is not raised or suspended, warning that this will be its first default in payment. A two-year suspension on the debt ceiling expired in July, and Democrats and Republicans in Congress remain at odds over whether to extend or increase it.

“At this point, given the Republicans’ categorical refusal to vote to suspend or raise the debt ceiling, we would expect Democrats to likely come to an agreement within their own party to raise the debt ceiling. via the budget reconciliation process, which requires only a simple majority of the Democratic votes in the Senate (50 senators and the vice president), in time to avoid a default, “the rating agency said in a statement. report.

If the limit is not raised, Moody’s said it believes the government will prioritize debt payments “to preserve the full confidence and credit of the U.S. government and avoid significant disruption in global financial markets.” .

Moody’s said the United States was to pay interest of about $ 4 billion on October 15, $ 14 billion on November 1 and $ 49 billion on November 15 and that a missed payment would be considered a default. payment.

“In general, we would not consider this result consistent with an Aaa rating and would most likely downgrade all Treasury securities except extraordinary

extenuating circumstances, ”he said.

However, the impact on the US sovereign credit profile and rating is expected to be limited, as Moody’s said its ratings reflect the expected loss on debt with an assumed US default of short duration and corrected with a recovery rate of 100. %.

Reporting by Mehr Bedi in Bengaluru and Karen Pierog in Chicago; Editing by Shailesh Kuber and Aurora Ellis

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