One of the world’s most prominent credit rating agencies, Moody’s, issued a statement on Friday, altering its outlook on the United States from “stable” to “negative.” The adjustment was attributed to significant fiscal deficits and a noticeable deterioration in debt affordability. This change echoes Fitch’s cautionary stance on US finances earlier this year, when it lowered the country’s credit rating.
However, the agency maintained the long-term issuer and senior unsecured ratings of the US at AAA. Despite this, Moody’s expressed growing concerns about the escalating political polarization within the US Congress, raising the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.
The agency’s analysts warned that in the context of higher interest rates, and without effective fiscal policy measures to reduce government spending or increase revenues, US fiscal deficits will remain large, significantly weakening debt affordability.
This move by Moody’s comes as the US national debt recently reached a historic high of $33 trillion in September. This record surpasses the previous peak of $32 trillion set in June, when Washington avoided a technical default by passing a law that temporarily abolished the national debt ceiling until 2025.
Moody’s highlighted the shift in interest rates, describing it as “materially and structurally higher.” William Foster, a senior credit officer at Moody’s, stated in an interview with Bloomberg, “This is the new environment for rates. Our expectation is that these higher rates and deficits around 6% of GDP for the next several years, and possibly higher, means that debt affordability will continue to pressure the US.”
In the past, during a debt-limit crisis in 2011, Standard & Poor’s downgraded the US credit rating from AAA to AA+, while Fitch maintained the highest US credit rating since 1994. Out of the three major credit rating companies, Moody’s is the only one currently with a top rating for the US.
The decision by Moody’s has raised concerns within economic and financial circles about the potential consequences for the US economy and global financial markets. Investors and policymakers will be closely monitoring how this revised outlook will impact the cost of borrowing for the US government and the country’s debt profile. Additionally, the announcement could influence future regulations and fiscal policies as US lawmakers seek to address the challenges associated with the expanding national debt.
These developments illustrate the evolving dynamics of the global financial landscape, as governments, markets, and international organizations navigate through economic uncertainties and fiscal challenges. Analysts and experts are expected to engage in further discussions and assessments of this altered perspective on the US credit outlook by Moody’s, shaping the broader conversation around fiscal governance and economic stability in the US and beyond.