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Moody’s does not spare Washington

· Towards a rating’s downgrade ·

The triple-A rating of the United States could be downgraded if an agreement with Congress on debt reduction is not reached in the next few weeks, the rating agency Moody’s announced yesterday. “If there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the US government’s rating under review for possible downgrade…” Moody’s explained. On May 31st, the Republican-controlled House, blocked a proposal to raise the debt ceiling, demanding massive spending cuts in return from the Administration. For Moody’s “the risk of default is very small, but rising,” and therefore, “a credible agreement” on the reduction of the deficit would maintain a stable outlook.

In the meantime, the demand for unemployment subsidies is in decline, although less than expected: in the last week, it is down 6,000 units to quota 422,000. Analysts had projected a drop to 415,000 units from 424,000 of the previous week.

New industry regulations have not brought positive results either: in April a 1.2% decline was registered, worse than analysts projections of a 1% drop, according to the Commerce Department.

Given this situation, the US Federal Reserve Bank does not intend to initiate new manoeuvres. According to The Wall Street Journal , the Fed has already bought 2 trillion dollars of mortgage and Treasury debt, with the objective of keeping interest rates low. Fed Chairman Ben Bernake, signaled in April that a further monetary easing would be difficult and there seems to be no plan to extend the bank’s program of bond-buying for a third time.

The buying plan for 600 billion dollars of US bonds expires at the end of June. In the last few days, the President of the Federal Reserve Bank of St. Louis, James Bullard, said that the Bank is entering a period in which changes in interest rates are not envisioned, signaling a pause in the aggressive politics of support for the economy.




St. Peter’s Square

Oct. 23, 2019