By Noel Randewich

By Noel Randewich

 

(Reuters) - Ratings agency Moody's on Wednesday maintained the United States' top-notch "Aaa" credit rating, saying the country's "exceptional" economic strength would counterbalance lower fiscal strength.

 

The ratings agency also kept its stable outlook on the United States and said it expects Washington to resolve its recent trade dispute with China. http://bit.ly/2Hr8Zc7

 

Massive tax cuts signed into law in December, which Republicans said would pay for themselves, will balloon the U.S. deficit in years ahead, the Congressional Budget Office said on April 9.

 

Moody's said it expects U.S. federal budget deficits to widen over the medium term, but that the country's strong economy and strong institutions would counterbalance lower fiscal strength.

 

"The diversity, dynamism, and competitiveness of the U.S. economy, along with the U.S. dollar's status as the pre-eminent international reserve currency and very large size and depth of the U.S. Treasury market, offset rising fiscal pressures stemming from ageing-related entitlement spending, higher debt service payments, and recent policy actions that will likely reduce future revenues and increase expenditures," Moody's said in a statement.

Moody's is watching the recent trade conflict between China and the United States, but does not expect tariffs announced by both countries to be fully implemented.

U.S. President Donald Trump on Tuesday said the United States would likely reach a trade agreement with China and that officials from both sides would sit down for negotiations in a few days.

"If things ultimately progress in a way that is outside of the base case, that would be negative for both countries and for the global market place, but our expectation is this will be negotiated back from the headlines you're reading," said Moody's Senior Credit Officer William Foster.

Standard & Poor's is the only one of three major U.S. bond agencies that does not currently assign the top-notch AAA-rating to the world's biggest economy.

In 2011, S&P stripped the United States of its coveted top rating over a debt ceiling showdown in Washington, citing "political brinkmanship" during the debate over raising the government’s legal borrowing limit.

(Reporting by Noel Randewich; Editing by Dan Grebler and Diane Craft)