- Moody’s has slashed its outlook on US government from stable to negative
- However the US will retain its AAA credit rating, the agency confirmed tonight
Ratings agency Moody’s Investors Service has slashed its outlook on the United States’ government from stable to negative, it emerged tonight.
Officials pointed to higher interest rates and concerns over America’s fiscal strength as part of its justification for the move.
Biden Administration officials hit back at the decision on Friday calling the shift a reflection of ‘extremism and dysfunction’ among congressional Republicans.
In a statement, Moody’s wrote: ‘In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues.
‘Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.’
Ratings agency Moody’s Analytics has slashed its outlook on the United States’ government from stable to negative, it emerged tonight
It added that ‘political polarization’ in Washington raises the risk successive governments will be unable to ‘reach consensus on a fiscal plan to slow the decline in debt affordability.’
Despite the strong language, Moody’s affirmed America’s AAA credit rating adding it expected to the US to retain its ‘exceptional economic strength.’
Deputy Treasury Secretary Wally Adeyemo said: ‘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.’
Moody’s cited several recent political events in its reason for the decision. These included its near-default earlier this year before Congress agreed to a debt limit increase.
It resulted in the booting of House Speaker Kevin McCarthy – the first time in history a House Speaker has been given the boot.
The US is once again facing the possibility of a government shutdown on November 18 if Congress doesn’t come to an agreement on short-term spending bills.
Such economic disruption would come at a challenging time for investors who are already grappling with rampant inflation and large US fiscal deficits.
Moody’s had earlier hinted at a potential downgrade in a September 25 report that while a short-lived shutdown would ‘be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other AAA sovereigns.’
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