Moody’s on Friday lowered its outlook on the US credit rating to “negative” from “stable” citing large fiscal deficits and a decline in debt affordability, a move that drew immediate criticism from President Joe Biden’s administration.
The move follows a rating downgrade of the sovereign by another ratings agency, Fitch, this year, which came after months of political brinkmanship around the US debt ceiling.
Federal spending and political polarisation have been a rising concern for investors, contributing to a selloff that took US government bond prices to their lowest levels in 16 years.
“It is hard to disagree with the rationale, with no reasonable expectation for fiscal consolidation any time soon,” said Christopher Hodge, chief economist for the US at Natixis. “Deficits will remain large … and as interest costs take up a larger share of the budget, the debt burden will continue to grow.”
The ratings agency said in a statement that “continued political polarisation” in Congress raises the risk that lawmakers will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”
“Any type of significant policy response that we might be able to see to this declining fiscal strength probably wouldn’t happen until 2025 because of the reality of the political calendar next year,” William Foster, a senior vice president at Moody’s, told Reuters in an interview.
Republicans, who control the US House of Representatives, expect to release a stopgap spending measure on Saturday aimed at 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 maintain a top rating for the US government. Fitch changed its rating from triple-A to AA+ in August, joining S&P which has had an AA+ rating since 2011.
Published in The Express Tribune, November 12th2023.
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