Moody’s cuts US outlook to ‘negative’, Washington is furious
- Moody's retains AAA credit rating on US government debt, but warns of risks due to political polarisation and high deficits.
Moody's on Friday lowered its outlook on the US credit rating to "negative" from “stable” on Friday. The rating agency said it expects America's fiscal deficits will remain very large, significantly weakening debt affordability. Moody's retained its AAA credit rating on US government debt. This year Fitch also lowered uts rating of the US. Fitch Ratings lowered its rating to AA from AAA in August.
Why Moody's cut outlook on US credit rating
Moody’s Investors Service has changed the outlook of the US debt to negative after markets closed on Friday.
According to the rating agency, the diminished fiscal strength of the US, undone by extreme partisanship in Washington, was a key driver of the action.
"In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability," the agency said.
Further the rating agency projected that “continued political polarization within US 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”.
On keeping the country's ratings at Aaa, Moody’s said that it expects the US to “retain its exceptional economic strength.” “Further positive growth surprises over the medium term could at least slow the deterioration in debt affordability,” the agency added.
How the US govt reacted?
The Biden administration condemned Moody's decision.
"While the statement by Moody's maintains the United States' Aaa rating, we disagree with the shift to a negative outlook," Deputy Treasury Secretary Wally Adeyemo said. "The American economy remains strong, and Treasury securities are the world's preeminent safe and liquid asset."
The federal government's budget deficit jumped to $1.7 trillion in the budget year that ended September 30, up from $1.38 trillion the previous year.
What another downgrade could mean for the US
A lower rating on US debt could cost taxpayers if it leads borrowers to demand higher interest rates on Treasury bills and notes.
The yield on the 10-year Treasury has risen significantly since July, from about 3.9% to 4.6% Friday, an unusually sharp rise.
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First Published:11 Nov 2023, 07:14 AM IST
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