Moody‘s Investors Service changed the outlook on the United States‘s credit rating from “stable” to “negative” but reaffirmed the country’s AAA rating.
In a release on Friday, Moody’s said that the outlook for U.S. credit was changed due to fiscal deficits remaining large, which is causing debt affordability to weaken significantly. It also said that “continued political polarization” is part of the reason for the change in the outlook.
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“The key driver of the outlook change to negative is Moody’s assessment that the downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths,” Moody’s said in a release. “In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
“Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” the release continued.
Some of the specific reasons mentioned for the outlook change were the recent ouster of the speaker of the House, “renewed debt limit brinkmanship,” and the threat of a government shutdown.
Moody’s did reaffirm the United States’s AAA credit rating, saying that “formidable credit strengths continue to preserve the sovereign’s rating, in particular exceptional economic strength, high institutional and governance strength, and the unique and central roles of the US dollar and Treasury bond market in the global financial system.”
Deputy Treasury Secretary Wally Adeyemo said the department disagrees “with the shift to a negative outlook” and reaffirmed that the economy “remains strong” and that “Treasury securities are the world’s preeminent safe and liquid asset.”
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“The Biden Administration has demonstrated its commitment to fiscal sustainability, including through the more than $1 trillion in deficit reduction included in the June debt limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade,” Adeyemo said in a statement on Friday evening.
The outlook change on U.S. credit by Moody’s comes months after Fitch Ratings downgraded the country’s credit rating from AAA to AA+. With that downgrade, Fitch attributed it to the “steady deterioration in standards of governance over the last 20 years.”
