Ratings agency Moody's has warned US politicians that if they don't agree a way to bring down federal spending it will cut the country's prized AAA rating.

Moody's currently has the US on 'AAA with a negative outlook' but said if steps weren't taken to curb government debt the agency would expect to lower the rating, probably to Aa1.

This would most likely see the US having to pay higher interest rates to borrow money from international markets.

The agency said it was looking for specific policies that "produce a stabilisation and then downward trend in the ratio of federal debt to GDP over the medium term".

However, Moody said it was unlikely the US would keep hold of its rating as far as 2014.

"The only scenario that would likely lead to its temporary maintenance would be if the method adopted to achieve debt stabilisation involved a large, immediate fiscal shock—such as would occur if the so-called "fiscal cliff" actually materialised—which could lead to instability," Moody's said.

"Moody's would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook," it added.

The 'fiscal cliff' refers to US tax cuts that are set to automatically expire at the end of 2012, that, if not extended, would cut the deficit by around a half in 2013.

However, it is also expected that such a move would plunge the US back into recession.

Last summer Standard & Poor's shocked the markets by cutting the rating on U.S. debt from triple-A to double-A-plus, saying it was no longer one of the safest debts in the world.

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