Moody's is Downbeat on the Fiscal Cliff Deal

Spin and marketing still don’t trump math.

Moody’s Investors Service warned Wednesday that the “fiscal cliff” tax deal was not enough to remove the risk of a downgrade of the U.S. credit rating.

The company, one of three major credit rating firms, said the deal approved Tuesday night to raise about $620 billion in tax revenue over the next 10 years was “a further step in clarifying the medium-term deficit and debt trajectory of the federal government.”

But the package, which averted income tax increases on most Americans, did not produce “meaningful improvement” in the ratio of the federal government’s debt to its economic output.

So the ratings company’s negative outlook remains tagged to the US, at least until spending is cut significantly. This pressure may be one of the few levers working against Obama and the Democrats going into next month’s spending and debt ceiling fight. President Obama has sought to remove the debt ceiling from that fight entirely. Republicans have so far not allowed him to do so.

Both Moody’s and Fitch issued downgrade warnings last year, and Fitch re-stated its warning last week. S&P became the first credit agency to downgrade the US credit rating, in August 2011.