Moody’s, one of the leading credit rating agencies, has delivered a blow to the United States by lowering its outlook on the country’s credit rating from “stable” to “negative.” This downgrade has been attributed to the country’s large fiscal deficits and a decline in debt affordability.
This latest move by Moody’s comes on the heels of another rating downgrade by Fitch earlier this year. Fitch downgraded the US credit rating amidst political disputes over the debt ceiling, which raised concerns for investors. These concerns have led to a selloff in the market and record low US government bond prices.
Moody’s has highlighted that continued political polarization in Congress poses a significant risk in addressing the decline in debt affordability. This concern is particularly relevant as Republicans plan to release a stopgap spending measure to avoid a partial government shutdown.
While Moody’s is the last major rating agency to maintain a top rating for the US government, both Fitch and S&P have previously downgraded their ratings. Moody’s has affirmed its long-term issuer and senior unsecured ratings at ‘Aaa’ but changed the outlook to indicate the possibility of a downgrade in the medium term.
The White House and Treasury Department have expressed disagreement with Moody’s shift to a negative outlook. They maintain that the American economy is strong despite the rating agency’s concerns. However, Treasury yields have risen, adding further pressure on US debt affordability.
Investors, however, do not expect a significant impact on the US bond market from Moody’s downgrade. Nevertheless, Moody’s decision comes at a time when President Biden’s support is falling in the polls. It will undoubtedly increase pressure on congressional Republicans to advance funding legislation and avoid a potential government shutdown.
Both parties, Democrats and Republicans, share responsibility for the budget deficits. Democrats have supported spending plans, while Republicans have pushed for tax cuts during the tenure of former President Trump. Now, the House and Senate must come to an agreement on funding legislation before the current funding expires on November 17th.
As the United States grapples with its fiscal challenges and political divisions, all eyes are on Congress to take swift action and alleviate the concerns raised by Moody’s and other credit rating agencies. With the countdown to the funding deadline ticking, the nation eagerly awaits a resolution that will secure its financial stability and restore confidence in its creditworthiness.
“Infuriatingly humble tv expert. Friendly student. Travel fanatic. Bacon fan. Unable to type with boxing gloves on.”