Moody’s cuts U.S. outlook to negative, citing deficits and political polarization

Moody’s
Investors
Service
on
Friday
lowered
its
ratings
outlook
on
the
United
States’
government
to
negative
from
stable,
pointing
to
rising
risks
to
the
nation’s
fiscal
strength.

The
ratings
agency
has
affirmed
the
long-term
issuer
and
senior
unsecured
ratings
of
the
U.S.
at
Aaa.

“In
the
context
of
higher
interest
rates,
without
effective
fiscal
policy
measures
to
reduce
government
spending
or
increase
revenues,”
the
agency
said.
“Moody’s
expects
that
the
US’
fiscal
deficits
will
remain
very
large,
significantly
weakening
debt
affordability.”

Brinkmanship
in
Washington
has
also
been
a
contributing
factor,
Moody’s
said.

“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,”
the
ratings
agency
said.

As
far
as
keeping
the
nation’s
ratings
at
Aaa,
Moody’s
said
that
it
expects
the
U.S.
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
said.

“While
the
statement
by
Moody’s
maintains
the
United
States’
Aaa
rating,
we
disagree
with
the
shift
to
a
negative
outlook,”
said
Deputy
Secretary
of
the
Treasury
Wally
Adeyemo
in
a
statement.
“The
American
economy
remains
strong,
and
Treasury
securities
are
the
world’s
preeminent
safe
and
liquid
asset.”

Moody’s
move
to
cut
its
outlook
arrives
as
Congress
faces
the
looming
threat
of
a
government
shutdown
once
more.
For
now,
the
government
is
funded
through
Nov.
17,
but
lawmakers
in
Washington
remain
at
loggerheads
over
a
bill
ahead
of
the
deadline.

Newly
elected
House
Speaker
Mike
Johnson
(R-La.)
has
indicated
that
he
will
release
a
Republican
government
funding
plan
on
Saturday,
a
move
that
would
permit
members
time
to
read
it
before
an
expected
Tuesday
vote
on
the
measure.

But
his
plan
to
fund
certain
parts
of
the
government
through
Dec.
7,
and
other
parts
through
Jan.
19,
known
as
a
laddered
continuing
resolution,
or
CR,
is
dead
on
arrival
in
the
White
House
and
in
the
Democratic-controlled
Senate.

“Moody’s
decision
to
change
the
U.S.
outlook
is
yet
another
consequence
of
Congressional
Republican
extremism
and
dysfunction,”
White
House
press
secretary
Karine
Jean-Pierre
said
in
a
statement.

Back
in
August,
Fitch
cut
the
U.S.
long-term
foreign
currency
issuer
default
rating
to
AA+
from
AAA,
citing
“expected
fiscal
deterioration
over
the
next
three
years,”
as
well
as
an
erosion
of
governance
and
a
growing
debt
burden.

Feuding
in
Washington
was
also
an
issue.
“The
repeated
debt-limit
political
standoffs
and
last-minute
resolutions
have
eroded
confidence
in
fiscal
management,”
Fitch
said
at
the
time.