Moody’s Investors Service lowered its ratings outlook on the United States’ government to negative from stable on Friday, citing rising risks to the nation’s fiscal strength.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
Moody’s also cited political polarization in Congress as part of it’s decision to downgrade the U.S. from stable to negative.
“Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” the ratings agency said.
Moody’s did keep the nation’s ratings at Aaa and said that it expects the U.S. to “retain its exceptional economic strength.” “Further positive growth surprises over the medium term could at least slow the deterioration in debt affordability,” the agency said.
“While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook,” said Deputy Secretary of the Treasury Wally Adeyemo in a statement. “The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
The downgrade comes ahead of another potential shutdown later this month if a government funding agreement isn’t reached. Newly elected House Speaker Mike Johnson (R-La.) was expected to release a Republican government funding plan on Saturday, which would allow members several days to read it before an expected vote on Tuesday.
On Friday, Johnson tweeted that “Moody’s Investor Service downgrade of the U.S. credit rating is the latest example of the failure of President Biden and Democrats reckless spending agenda.”
“Our $33.6 trillion debt is unsustainable and poses a danger to our national security and economy,” Johnson continued.
Moody’s isn’t the only firm to downgrade the U.S. In August, Fitch cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” as well as an erosion of governance and a growing debt burden.
The U.S. deficit grew to $2 trillion for FY 2023 and recently hit $33 trillion in debt. The Congresional Budget Office (CBO) is projecting that debt could top $50 trillion by 2030.