WASHINGTON (Reuters) – Moody's Investors Service warned on Wednesday that the United States could lose its top credit rating if it did not raise its debt ceiling, piling pressure on Congress and the White House to reach a deal.
The announcement by the ratings agency came shortly after President Barack Obama and leading lawmakers went back to the negotiating table to seek progress on a debt deal so the nation can pay its bills after an August 2 deadline.
In a statement, 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 Treasury debt obligations."
Underscoring the effect a potential default would have on financial markets, Federal Reserve Chairman Ben Bernanke said if Washington failed to raise the U.S. borrowing limit in time, the United States would pay creditors first and stop benefits such as payments under the Social Security retirement program.
His statement, aimed at reassuring investors that the United States would not default on its debt, stood at odds with the Obama administration, which has repeatedly played down a "Plan B" scenario if the $14.3 trillion debt ceiling was not raised.
Treasury Secretary Timothy Geithner has said paying U.S. debt alone would be unworkable, a stance Republicans consider political grandstanding.
The White House and top congressional leaders hope it does not get that far.
Obama and leaders from both political parties began meeting for a fourth straight day at 4:24 p.m. EDT.
Republicans have insisted on steep spending cuts in return for voting to increase the debt ceiling. But both sides are divided over tax increases, which Democrats insist must also be part of any long-term budget deal. Republicans say they won't back any tax hikes because they could hurt the economy.
Talks have become more acrimonious in the past few days, as Republican and Democratic leaders have lashed out at each other and hardened their positions, making compromise difficult.
House of Representatives Republican leader Eric Cantor, who has been at odds with House Speaker John Boehner, the top Republican in Congress, over how to reach agreement, said the two sides should focus on about $3 trillion in spending cuts that had been floated as part of a deal Obama had proposed.
Democrats are not likely to back that idea because it would require deep cuts to benefits programs that they oppose and would not include the $1 trillion in tax increases they seek.
(Additional reporting by Walter Brandimarte, Daniel Bases, Donna Smith, Thomas Ferraro, Doug Palmer, Caren Bohan and Tim Reid in Washington and Emily Flitter in New York; Editing by Ross Colvin and Paul Simao)
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