Moody's Investors Service jolted White House debt talks on Wednesday with a warning that the United States may lose its top credit rating in the coming weeks, piling pressure on Washington to lift its debt ceiling.
The announcement by Moody's, the first among the major rating agencies to place the United States' AAA rating on review for a possible downgrade, came minutes after President Barack Obama and congressional leaders began negotiating for the fourth straight day of deficit talks.
The president and lawmakers, who met for nearly two hours on Wednesday, are trying to agree on a deal to reduce the deficit. Republicans demand steep spending cuts in return for supporting an increase in the $14.3 trillion borrowing limit.
Obama abruptly ended a tense budget meeting with Republican leaders by walking out of the room, a Republican aide familiar with the talks said.
The aide said the session was the most tense of the week as House of Representatives Speaker John Boehner, the top Republican in Congress, dismissed spending cuts offered by the White House as "gimmicks and accounting tricks."
The Treasury says it will run out of money to pay its bills on August 2. Moody's said it saw a "rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations."
Potentially souring efforts to raise the debt ceiling while putting off talks about spending cuts and tax increases, Moody's said it would likely assign a negative outlook to the nation's gold-plated credit rating if a credible agreement with long-term deficit reduction measures were not achieved.
The move added fuel to a political fire that has seen Republicans and the White House at odds for weeks.
Republicans have insisted on steep spending cuts, while Democrats insist tax hikes for the wealthiest Americans must also be part of a deal. Republicans say they oppose any tax increases because they could hurt the economy.
"They (Moody's) are worried they are having these ideological arguments while Rome burns. They want to say this is serious," said Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco.
The last time the United States was placed on review for downgrade was in 1996, by Moody's.
As political leaders met at the White House, their representatives sparred over the meaning of Moody's move.
"The fact that Moody's put the United States on its watch list and may downgrade our AAA bond rating underscores the danger for those who would hold our economy and jobs hostage to a rigid ideological agenda -- instead of acting in the best interests of our country," Democratic Representative Chris Van Hollen said in a statement.
A spokesman for Boehner said the move proved the need for cutting spending.
"As Speaker Boehner has warned for months, if the White House does not take action soon to address our nation's debt crisis by reining in spending, the markets may do it for us. This action by Moody's today reinforces the speaker's warning," the spokesman said.
