Moody's Investors Service on Wednesday placed the U.S. government on review for possible downgrade, increasing pressure on lawmakers haggling over a solution to the country's fiscal woes ahead of a looming Aug. 2 deadline.

Moody's said it placed the U.S. Aaa government bond rating and related ratings on review for possible downgrade amid increasing concerns the government might default on its debt if the U.S. debt ceiling isn't raised. The ratings move comes as a fresh reminder of what's at stake in ongoing deficit talks between the White House and congressional leaders.

"As Speaker [John] Boehner has warned for months, if the White House does not take action soon to address our nation's debt crisis by reining in spending, the markets may do it for us," said Michael Steel, a spokesman for the House speaker. "This action by Moody's today reinforces the speaker's warning."

The Obama administration agreed that the rating agency's move was a good reminder of the need to solve the nation's fiscal crisis. They put the onus, however, on Congress.

"Moody's assessment is a timely reminder of the need for Congress to move quickly to avoid defaulting on the country's obligations and agree upon a substantial deficit-reduction package," said Jeffrey Goldstein, the U.S. Treasury Department's undersecretary for domestic finance.

The ratings agency also placed on review for downgrade its ratings on financial institutions directly linked to the U.S. government, including Fannie Mae and Freddie Mac.

Moody's said the ratings action was prompted by the possibility of "a small but rising risk of a short-lived default."

Moody's said an actual default, regardless of duration, would fundamentally alter the agency's assessment of the timeliness of future payments, and that the Aaa rating would likely no longer be appropriate. However, because that type of default would likely be short-lived, the rating would most likely be downgraded to somewhere in the Aa range, Moody's said.

If the debt limit is raised again and a default is avoided, the Aaa rating would likely be confirmed. Moody's did note the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless "substantial and credible agreement is achieved on a budget that includes long-term deficit reduction."

Moody's move wasn't a complete surprise. In early June, Moody's warned it might review the government's Aaa debt rating for possible downgrade as early as next month if there is no progress toward a deal in Washington to increase the $14.294 trillion federal borrowing limit and cut deficits.

Standard & Poor's on April 18 changed its outlook on U.S. Treasury securities to "negative" from "stable," due to concern about the ability to reach a deal to rein in deficits.

Another ratings agency, Fitch Ratings, gave the White House and Congress more leeway. The agency said last month it would put U.S. debt on watch for downgrade in early August in the event that Congress failed to lift the debt ceiling before other measures aimed at avoiding default are exhausted.

The Moody's warning comes as President Barack Obama and congressional leaders are currently meeting at the White House for the fourth consecutive day of negotiations to find a path to slash the deficit and raise the U.S. borrowing limit. The Treasury Department has said if a deal isn't raised by Aug. 2, the U.S. would default on its debt.

Mr. Obama has said such a move could pull the U.S. back into a recession.

While there appears to be little movement in deficit talks—at least publicly—the top Republican in the Senate offered a plan Tuesday that opened the door to ensure the country's debt ceiling is increased if Congress fails to reach agreement on a major deficit-reduction package.

And in a rarity during the deficit talks, the idea was welcomed by a member of the opposing party. Senate Majority Leader Harry Reid (D., Nev.) said Wednesday that while he was still reviewing the details of Minority Leader Mitch McConnell's plan, he was glad the Kentuckian had come forward with it.

"I am heartened by what I read," Mr. Reid said, speaking on the Senate floor. "This is a serious proposal. And I commend the Republican leader for coming forward."

The Wall Street Journal