WASHINGTON — The shrinking budget deficit and improving economy have led Moody's Investor Services to affirm the nation's AAA credit rating and upgrade the outlook for government debt to stable from a negative watch that could have led to a downgrade.
But Moody's warned that failure to address the long-term budget deficit "could put the rating again under pressure" down the road.
For the short term, however, the tax increases and automatic federal spending cuts that began this year have helped cause a "steep decline" in the budget deficit that warranted removing the negative outlook, Moody's said.
"The U.S. budget deficits have been declining and are expected to continue to decline over the next few years," Moody's said Thursday.
"Furthermore, the growth of the U.S. economy, which, while moderate, is currently progressing at a faster rate compared with several AAA peers and has demonstrated a degree of resilience to major reductions in the growth of government spending," Moody's said.
The Congressional Budget Office has estimated that the 2013 federal budget deficit would be $642 billion, down from $1.1 trillion the previous year.
The reduction would lower the deficit to 4 percent of total economic output in 2013 from 7 percent the previous year. Moody's said that was a greater decline than it anticipated when placing the U.S. rating on a negative outlook in 2011.
The move Thursday by Moody's came after another leading credit rating company, Standard & Poor's, upgraded its U.S. outlook last month to stable from negative as well.
S&P, however, had downgraded the U.S. rating to AA+ in 2011 after the divisive debate over raising the debt limit.