Moody’s downgrades US credit rating

NEW YORK/WASHINGTON:

Moody’s on Friday cut the outlook for the US credit rating to “negative” from “stable”, citing large budget deficits and declining debt affordability, a move that drew immediate criticism from President Joe Biden’s administration.

The move follows a downgrade of the sovereign’s credit rating by another rating agency, Fitch, this year, which came after months of political deadlock over the US debt ceiling.

Federal spending and political polarization are a growing concern for investors, contributing to a selloff that has pushed U.S. government bond prices to their lowest levels in 16 years.

“It’s hard to argue with the rationale without reasonable expectations of fiscal consolidation anytime soon,” said Christopher Hodge, chief U.S. economist at Natixis. “Deficits will remain large … and as interest costs take up a larger share of the budget, the debt burden will continue to grow.”

The rating agency said in a statement that “continued political polarization” in Congress raises the risk that lawmakers may not be able to reach consensus on a fiscal plan to slow down debt affordability.

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

Republicans, who control the US House of Representatives, expect to pass a stopgap spending measure on Saturday aimed at averting a partial government shutdown while keeping federal agencies open when current funding runs out next Friday.

Moody’s is the last of the big three rating agencies to maintain a top rating for the US government. Fitch changed its rating from triple-A to AA+ in August, joining S&P which has had an AA+ rating since 2011.

Published in The Express Tribune, November 12^u2023.

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