Moody’s Investors Service said it may join Standard and Poor’s in downgrading the US’s credit rating unless Congress next year reduces the percentage of debt to gross domestic product during budget negotiations.

The US economy will probably tip into recession next year if lawmakers and President Barack Obama can’t break an impasse over the federal budget and if George W Bush-era tax cuts expire in what’s become known as the “fiscal cliff”, according to a report by the nonpartisan Congressional Budget Office published on August 22nd.

The rating would likely be cut to Aa1 from Aaa if an agreement on the debt ratio isn’t reached, Moody’s said. It put the rating under review with a negative outlook in August 2011 when the US pushed back a decision on spending and raised its debt ceiling after months of political wrangling. SP cut its rating to AA+ that month, blaming the nation’s political process.

Treasuries rallied as investors ignored the reduction, with the yield on the benchmark 10-year note since declining to record lows and drawing the ire of investors such as Warren Buffett, the biggest shareholder of Moody’s, who said after the SP decision that the US should be “quadruple-A”. - Bloomberg