Moody’s Warns U.S. Risks Losing AAA Credit Rating Amid Fiscal Concerns
Moody’s Investors Service issued a stark warning to the United States by changing the outlook on the nation's debt to negative this Friday. This adjustment from the credit rating agency signals a heightened risk of the U.S. losing its last pristine AAA credit rating. Such a downgrade could significantly impact American finances, from investment portfolios to borrowing costs, and increase the government's debt repayment expenses.
The revision reflects concerns over America's "diminished fiscal strength," heavily influenced by political partisanship, as per Moody’s statement. The agency highlighted that, in the face of rising interest rates, the absence of effective fiscal policy to cut government spending or boost revenues could lead to persistently large fiscal deficits and weakened debt affordability.
The U.S. Treasury officials contested Moody’s decision, underscoring the robust American economy and the liquidity of U.S. Treasuries. Deputy Secretary of the Treasury Wally Adeyemo expressed disagreement with the negative outlook, emphasizing the strength and reliability of U.S. financial assets.
Notably, Moody’s has been the only major credit rating agency to maintain the United States at an AAA rating since 1917. This status was challenged when Standard and Poor’s downgraded the U.S. for the first time in 2011, following a debt ceiling standoff. Fitch Ratings followed suit in August after another debt ceiling debate.
Recent political events, including the near-default earlier this year, the unprecedented ousting of House Speaker Kevin McCarthy, and the prolonged impasse in Congress over a replacement, have contributed to Moody’s negative assessment. These events reflect deepening political polarization, making it challenging to reach a bipartisan consensus on a comprehensive plan to address widening fiscal deficits.
The looming threat of a government shutdown by November 17 further exacerbates the situation, with federal agencies preparing for the possibility amid the absence of a clear resolution path from House Speaker Mike Johnson.
White House Press Secretary Karine Jean-Pierre attributed Moody’s action to “Congressional Republican extremism and dysfunction,” highlighting the broader consequences of political infighting.
In summary, Moody’s outlook change serves as a cautionary note for the U.S., emphasizing the need for fiscal discipline and political consensus to maintain the country’s top credit rating and avoid the repercussions that could follow a downgrade. The situation underscores the critical interplay between political decisions and economic stability.