US economy

Credit agency Moody’s cuts outlook on US government to negative

The credit ratings agency Moody’s reduced its outlook on the US government from stable to negative, citing division in Washington DC and risks to the nation’s fiscal strength.

While Moody’s maintained the US’s current top-grade AAA rating, it raised the prospect that this may be cut.

Moody’s warned that the US’s deficits are likely to remain “very large” in the face of higher interest rates. It also cautioned that “continued political polarization” in Congress rasies the risk that governments “will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability”.

The federal government is on the brink of another shutdown, with just a week left for the Republican-led House, Democratic-led Senate and Biden White House to reach a breakthrough on funding.

The Biden administration said it disagreed with the decision, which comes just three months after another major agency, Fitch, downgraded its top rating for the US. Standard & Poor’s, the other leading ratings agency, had already done so.

“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’s fiscal deficits will remain very large, significantly weakening debt affordability,” the agency said in a statement.

Wally Adeyemo, the US deputy treasury secretary, said: “While the statement by Moody’s maintains the United States’ AAA rating, we disagree with the shift to a negative outlook. The American economy remains strong, and treasury securities are the world’s pre-eminent safe and liquid asset.”

Karine Jean-Pierre, White House press secretary, suggested the move was “yet another consequence of congressional Republican extremism and dysfunction”.


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