Moody’s Investors Service has revised the United States' government ratings outlook to negative, a shift from its previous stable stance. This change underscores growing concerns about the nation's fiscal strength.
Despite this adjustment, Moody’s US credit rating remains unchanged at Aaa. What did change was the credit outlook.
The downgrade reflects the cumulative effect of heightened interest rates and a lack of effective fiscal policy measures aimed at curbing government spending or bolstering revenues. Moody’s anticipates persistent large fiscal deficits in the U.S., leading to a significant weakening in debt affordability.
Moody's the most interesting ratings agency in the world ???? pic.twitter.com/7EGdojjQMu— Barchart (@Barchart) November 12, 2023
A key factor contributing to this negative outlook is the ongoing political strife in Washington. The ratings agency highlighted the deep-seated polarisation within the U.S. Congress, which raises doubts about the government's ability to achieve a consensus on a fiscal plan that could reverse the decline in debt affordability.
In defence of maintaining the Aaa rating, Moody’s expressed confidence in the U.S.’s exceptional economic strength, suggesting that positive economic growth over the medium term could mitigate the deterioration in debt affordability.
Treasury disagrees
Reacting to Moody’s assessment, Treasury deputy secretary Wally Adeyemo disagreed with the negative outlook, emphasizing that the American economy remains strong and “treasury securities are the world’s preeminent safe and liquid asset”.
The Moody’s revision coincides with the looming threat of a U.S. government shutdown. The government is temporarily funded until November 17, but there is a palpable deadlock in Congress regarding future funding. Newly elected house speaker Republican Mike Johnson has proposed a funding plan which is facing opposition from both the White House and the Democrat-controlled Senate.
Back in August, Fitch had cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA, quoting “expected fiscal deterioration over the next three years,” as well as an erosion of governance and a growing debt burden.