Moody’s lowered its outlook for the US credit rating to” negative “from” stable”, citing a large fiscal deficit and low debt sustainability, a move that immediately drew criticism from the administration of President Joe Biden.
This came after Fitch downgraded the sovereign rating this year, a move that came after a months-long bitter political debate over the US debt ceiling.
Federal spending and political polarization have been sources of growing concern for investors, contributing to a sell-off that has pushed U.S. government bond prices to 16-year lows.
Christopher Hodge, chief US economist at Natixis, said: “it’s hard to disagree with this logic with no reasonable expectation of fiscal consolidation anytime soon. The deficit will remain large… As interest costs take up a larger share of the budget, the debt burden will continue to increase,”he said.
Moody’s said in a statement that “continued political polarization” in Congress increases the risk that lawmakers will be unable to reach consensus on a fiscal plan to slow the decline in debt sustainability.
“Any kind of significant policy response that we may be able to see to this decline in financial strength probably won’t happen until 2025 due to the realities of the political calendar next year,”said William Foster, senior vice president of Moody’s.
Republicans, who control the House of Representatives, expect to issue a temporary spending measure on Saturday aimed at avoiding a partial government shutdown by keeping federal agencies open when current funding expires next Friday.
While Moody’s changed its outlook indicating the possibility of a rating downgrade in the medium term, the agency kept the long-term credit rating and the unsecured rating at Aaa, attributing this to the credit and economic strengths of the United States.
Immediately after Moody’s issued its statement, White House spokeswoman Karen Jean-Pierre said: “the change was another consequence of the extremism of Republican deputies and their failure to do their job in Congress.
