Moody’s on Friday modified its outlook on the US credit standing to “negative” from “stable” citing large fiscal deficits and a decline in debt affordability.
The move follows a rating downgrade of the sovereign by one other rating agency, Fitch, earlier this 12 months, which got here after months of political brinkmanship across the US debt ceiling.
“Continued political polarization inside US Congress raises the chance that successive governments won’t have the opportunity to achieve consensus on a fiscal plan to slow the decline in debt affordability,” Moody’s said in a press release.
Republicans who control the House of Representatives expect to release a stopgap spending measure on Saturday, geared toward averting a partial government shutdown by keeping federal agencies open when current funding expires next Friday.
Moody’s is the last of the three major rating agencies to keep up a top rating for the US government. Fitch modified its rating from triple-A to AA+ in August joining S&P, which has an AA+ rating since 2011.
Moody’s is the last of the three major rating agencies to keep up a top rating for the US government. AP
While it modified its outlook – indicating that a downgrade is feasible over the medium term – Moody’s affirmed its long-term issuer and senior unsecured rankings at ‘Aaa’ citing the US credit and economic strengths.
“The US’ institutional and governance strength can be very high, supported specifically by monetary and macroeconomic policy effectiveness,” it said.
Top officials in President Biden’s administration rejected the move.
White House spokesperson Karine Jean-Pierre said the change was “one more consequence of congressional Republican extremism and dysfunction.”
Top officials in President Biden’s administration rejected the move.AP
“While the statement by Moody’s maintains the US’ AAA rating, we disagree with the shift to a negative outlook. The American economy stays strong, and Treasury securities are the world’s preeminent secure and liquid asset,” Deputy Treasury Secretary Wally Adeyemo said in a press release.
Adeyemo said the Biden administration had demonstrated its commitment to fiscal sustainability, including through over $1 trillion in deficit reduction measures included in a June agreement struck with Congress on raising the US debt limit, and Biden’s proposal to cut back the deficit by nearly $2.5 trillion over the following decade.
The outlook change comes at a volatile stretch for the bond market. Treasury yields have soared over the previous couple of months to 16-year highs on expectations the Federal Reserve will keep monetary policy tight, in addition to on US-focused fiscal concerns.
“Continued political polarization inside US Congress raises the chance that successive governments won’t have the opportunity to achieve consensus on a fiscal plan to slow the decline in debt affordability,” Moody’s said.REUTERS
“The sharp rise in US Treasury bond yields this 12 months has increased pre-existing pressure on US debt affordability,” Moody’s said.
Yields, which move inversely to bond prices, have reversed a number of the gains in recent weeks.
“It’s a reminder that the clock is ticking and the markets are moving closer and closer to understanding that we could go into one other period of drama that could lead on ultimately to the federal government shutting down,” said Quincy Krosby, chief global strategist at LPL Financial.