Moody’s Downgrades US Credit Rating to ‘Negative’ on Fiscal Deficits and Debt Concerns

Moody's Downgrades US Credit Rating to Negative on Fiscal Deficits and Debt Concerns

The credit agency Moody’s has revised the United States credit outlook to “negative” from “stable” due to concerns over persistent large fiscal deficits and diminishing debt affordability. The announcement follows a previous downgrade by Fitch and reflects ongoing apprehension among investors about federal spending and political discord.

Moody’s Marks U.S. Credit Negative; Biden Administration Challenges View

Moody’s decision on Friday to alter the U.S. credit outlook has come at a time of heightened fiscal scrutiny, as national debt levels rise and political disagreements hinder consensus on budgetary management. As the nation grapples with these fiscal challenges, Moody’s remarks echo investor concerns about the direction of U.S. economic policy and the potential for legislative stalemate over budget and deficit strategies.

“Any type of significant policy response that we might be able to see to this declining fiscal strength probably wouldn’t happen until 2025 because of the reality of the political calendar next year,” Moody’s senior vice president William Foster told Reuters during an interview.

The Biden administration is challenging Moody’s revised outlook, highlighting the alleged strength of the U.S. economy and the government’s dedication to enduring fiscal health. The reverberations of this Moody’s assessment ripple into the political sphere, ramping up the scrutiny on Biden’s team as they pilot through a convoluted fiscal environment. Recent polls show former President Donald Trump ahead of President Joe Biden in various crucial swing states.

Moody’s credit assessment trails closely behind a hawkish speech by Fed Chairman Jerome Powell in Washington, where he conveyed doubts about the adequacy of the Federal Reserve’s policy actions. Deputy Treasury Secretary Wally Adeyemo said the Treasury Department disagrees with Moody’s latest revision.

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

Nevertheless, despite Adeyemo’s remarks, the government’s latest 30-year Treasury auction on Thursday fared badly, with investors describing the bid-to-cover ratio and the yield concession as pathetic. White House spokeswoman Karine Jean-Pierre stressed that Moody’s downgrade is the fault of Republicans. The negative rating she said was “yet another consequence of congressional Republican extremism and dysfunction.”

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