In a notable development, renowned credit ratings agency Moody’s has shifted its outlook on the United States government from stable to negative, underscoring concerns about escalating political divisions in Washington DC and potential threats to the nation’s fiscal resilience.
While Moody’s has retained the US’s coveted AAA rating, it has introduced the prospect of a downgrade, citing the likelihood of persistently substantial deficits amid rising interest rates. The agency sounded a cautionary note on the “continued political polarization” in Congress, expressing apprehension that this discord could impede the formulation of a cohesive fiscal strategy to mitigate the erosion of debt affordability.
The federal government teeters on the precipice of another shutdown, with a mere week remaining for the Republican-led House, the Democratic-led Senate, and the Biden White House to forge a breakthrough on funding agreements.
The Biden administration pushed back against Moody’s decision, registering its disagreement. Wally Adeyemo, the US Deputy Treasury Secretary, emphasized the robustness of the American economy and asserted that treasury securities retain their status as the world’s foremost secure and liquid asset.
Karine Jean-Pierre, White House Press Secretary, attributed Moody’s move to “congressional Republican extremism and dysfunction,” portraying it as a consequence of these political dynamics.
This development follows Fitch’s recent downgrade of the US’s top rating, and Standard & Poor’s had taken a similar step earlier. Against the backdrop of escalating interest rates, Moody’s anticipates that the US’s fiscal deficits will persistently loom large, significantly undermining debt affordability without effective fiscal policy interventions.
As the nation grapples with these economic uncertainties, the intricate dance of political discourse and policy decisions continues, shaping the trajectory of the US economy in the coming months.
