Moody’s Downgrades U.S. Credit Rating Outlook to “Negative”, White House Criticizes
Moody’s, one of the major U.S. rating agencies, has lowered the outlook for the U.S. credit rating to “negative” from “stable”, citing concerns over fiscal deficits and declining debt affordability. This move has immediately drawn criticism from the White House.
This announcement comes after Fitch, another U.S. rating agency, downgraded its sovereign rating earlier this year due to special policies surrounding the debt ceiling. The concerns surrounding U.S. federal spending and political polarization have been a growing concern for investors, leading to a decrease in U.S. government bond prices to their lowest levels in 16 years.
Moody’s attributed the decision to turn the outlook to negative to “ongoing political polarization” in the U.S. Congress. William Foster, senior vice president at Moody’s, stated that there is an increased risk that lawmakers will be unable to agree on a fiscal plan to slow the decline in debt affordability, citing the realities of next year’s political calendar.
After the release, White House spokesperson Karine Jean-Pierre attributed the change to “Republican extremism and dysfunction in Congress”, while U.S. Treasury Undersecretary Wally Adeyemo pushed back against the decision, stating that the U.S. economy remains strong and the national debt is the largest in the world.
Moody’s is the last of the three major rating agencies to maintain the U.S. government’s highest rating. Fitch changed its rating from AAA to AA+ in August, joining Standard & Poor’s, which has held an AA+ rating since 2011. Despite the negative outlook, Moody’s affirmed its long-term issuer and senior unsecured ratings at ‘Aaa’, citing U.S. credit and economic strength.
While Moody’s downgrade is likely to heighten fiscal concerns, investors have expressed doubts that it would significantly impact U.S. bond markets, which are considered a safe haven due to their depth and liquidity.
The announcement comes at a time when President Biden is seeking re-election in 2024 and has seen a decline in support in opinion polls. Moody’s decision is also expected to put pressure on congressional Republicans to advance funding legislation to avoid a partial government shutdown.
The U.S. Treasury continues to stand firm that the U.S. economy remains resilient despite the negative outlook, and the implications of Moody’s decision continue to be a topic of discussion in the financial sector.