Moody’s won’t lower US credit rating for supercommittee failure

The nation’s top credit rating is “unaffected” by the failure of the supercommittee to reach a deficit-cutting deal, Moody’s Investors Service said Wednesday.

In a news release, the credit-rating agency said the nation’s AAA rating, which currently has a negative outlook, will remain the same for now, even though lawmakers failed to reach an agreement to substantially reduce the deficit.

While the supercommittee failure was seen as a major event on Capitol Hill, Moody’s said its dissolution does not substantially change America’s fiscal math. The panel failed to come up with its own plan to cut at least $1.2 trillion from the deficit, but now automatic cuts of that same amount are set to take effect in 2013.

If the supercommittee had managed to “go big” and come up with a plan exceeding its mandate, it would have been a positive for the nation’s rating, but “its failure to do so does not decrease the amount of deficit reduction already legislated,” Moody’s said.

The agency added that, while the makeup of the trigger cuts could be altered without significantly affecting the nation’s credit, major efforts to reduce or eliminate those cuts could have “negative rating implications.”

Lawmakers have been openly discussing the possibility of rolling back the automatic cuts that begin in 2013. Shortly after the supercommittee dissolved, President Obama threatened to veto any bill from Congress that tries to undo the spending reductions.

Moody’s noted that the supercommittee’s failure does not bode well for future efforts to tame the deficit before the 2012 elections, even though it said the government needs to do more to address its debt.

Whether the Bush-era tax rates are extended, as well as how entitlement programs are handled going forward, will be major questions on the deficit that will affect how its rating is handled.

With Moody’s announcing no change to its view on the nation’s debt, Fitch Ratings remains the lone major rater yet to announce whether the supercommittee failure will affect its outlook. Fitch has said it plans to finish its review of the nation’s rating by the end of November, and that the failure will likely result in a “negative rating action.” The most likely result of the review will be lowering the outlook on the rating to negative, although an actual downgrade is also a possible outcome, but “less likely,” Fitch said.

Standard & Poor’s, which downgraded the nation’s credit rating for the first time in its history in August, reaffirmed its AA+ rating on U.S. debt shortly after the supercommittee admitted defeat. The firm said the failure of the panel affirmed its previous decision to downgrade the nation’s rating, for which it cited as reasons growing partisanship and doubt that policymakers can take major steps to reduce the deficit.

It warned, however, that any effort to roll back the automatic cuts could increase “downward pressures” on that rating.

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