Moody’s downgrades the US outlook to negative due to deficits and political polarization

The White House is seen at dusk on September 30, 2023 in Washington, DC.

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Moody’s Investors Service on Friday lowered its U.S. government rating outlook to negative from stable, citing rising risks to the country’s financial strength.

The credit rating agency has affirmed the US long-term issuer and senior senior unsecured ratings at Aaa.

“In the context of rising interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. Moody’s expects the US fiscal deficit to remain very large, significantly weakening debt sustainability.

Moody’s said brinkmanship in Washington was also a contributing factor.

The credit rating agency said, “Continuing political polarization within the US Congress increases the risk that successive governments will not be able to reach a consensus on a financial plan to slow the decline in debt sustainability.”

Regarding keeping the country’s ratings at Aaa, Moody’s said it expects the United States to retain its exceptional economic strength. “More positive growth surprises in the medium term could at least slow the deterioration in debt sustainability,” the agency said.

“While Moody’s statement maintains the US rating at Aaa, we disagree with the shift to a negative outlook,” Deputy Treasury Secretary Wally Adeyemo said in a statement. “The US economy remains strong, and Treasury securities are the world’s preeminent safe and liquid assets.”

Moody’s move to lower its forecasts comes as Congress faces the imminent threat of another government shutdown. Currently, the government is funded until November 17, but lawmakers in Washington are still at loggerheads over a bill before the deadline.

Newly elected House Speaker Mike Johnson (R-LA) has indicated he will release the Republican government funding plan on Saturday, a move that would allow members time to read it before an expected Tuesday vote on the measure.

But his plan to fund certain parts of the government through December 7, and other parts through January 19, known as tiered continuing resolution, or CR, died on arrival at the White House and the Democratic-controlled Senate.

“Moody’s decision to change the outlook for the United States is another result of Republican extremism and dysfunction in Congress,” White House press secretary Karine Jean-Pierre said in a statement.

Last August, Fitch downgraded the US long-term foreign exchange issuer default rating to AA+ from AAA, citing “expected financial deterioration over the next three years,” as well as eroding governance and a growing debt burden.

Disagreement in Washington was also a problem. “Repeated political standoffs over debt limits and last-minute decisions have eroded confidence in financial management,” Fitch said at the time.

(tags for translation) Breaking news: Politics

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