Moody’s, one of the top credit rating agencies in the world, downgraded the credit standing of the U.S. from stable to negative. But on the bright side, Moody’s affirmed America’s long-term issuer and senior unsecured ratings at Aaa. The downgrade comes as the U.S. Congress is threatening another government shutdown over disagreements with the White House over spending.
Moody’s explained that the main reason behind the outlook change to negative was the firm’s assessment that the downside risks to the U.S.’ fiscal strength have increased and “may no longer be fully offset by the sovereign’s unique credit strengths.”
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“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” said Moody’s in a statement. “Continued political polarization within U.S. 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.”
As for Moody’s affirmation of America’s Aaa rating, the firm explained this reflects its view that the US’ “formidable credit strengths continue to preserve the sovereign’s credit profile.”
Moody’s expects the US to retain its “exceptional economic strength” and said that “further positive growth surprises over the medium term could at least slow the deterioration in debt affordability. Second, the US’ institutional and governance strength is also very high, supported in particular by monetary and macroeconomic policy effectiveness. “
“The unique and central roles of the US dollar and Treasury bond market in the global financial system provide extraordinary funding capacity and significantly reduce the risk of a sudden spiraling of funding costs, which is particularly relevant in the context of high debt levels and weakening debt affordability,” said Moody’s, in explanation of why the U.S. can continue with high deficits and debt without crashing its economy.
In response, Deputy U.S. Secretary of the Treasury Wally Adeyemo said in a statement, “While the statement by Moody’s maintains the United States’s Aaa rating, we disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
White House press secretary Karine Jean-Pierre blamed the Republicans in the U.S. Congress for the downgrade. She said in a statement, “Moody’s decision to change the U.S. outlook is yet another consequence of Congressional Republican extremism and dysfunction.”
