Moody’s Lowers United States’ Government Ratings Outlook to Negative
In a significant move, Moody’s Investors Service has downgraded its ratings outlook on the United States’ government from stable to negative. The leading credit rating agency cited rising risks to the nation’s fiscal strength as the primary reason for this downgrade.
Moody’s expects that the US’ fiscal deficits will continue to be alarmingly large, significantly weakening debt affordability. Furthermore, the agency expressed concerns about the political polarization within the US Congress, which raises the risk of successive governments failing to reach a consensus on a fiscal plan.
While Moody’s does anticipate that the US will retain its exceptional economic strength, it strongly emphasizes the need for further positive growth surprises to slow down the deterioration in debt affordability.
However, Deputy Secretary of the Treasury, Wally Adeyemo, disagrees with Moody’s decision. He states that the American economy remains strong, expressing a different view from the agency’s negative outlook.
This downgrade comes at a time when Congress faces the looming threat of a government shutdown. House Speaker Mike Johnson is set to release a Republican government funding plan, but experts expect it to be rejected by both the White House and the Democratic-controlled Senate.
Moody’s decision is broadly viewed as a consequence of Congressional Republican extremism and dysfunction. This sentiment aligns with Fitch’s previous downgrade of the US long-term foreign currency issuer default rating in August. Fitch had cited expected fiscal deterioration and the erosion of governance as reasons for its downgrade. Notably, Fitch pointed out repeated debt-limit political standoffs and last-minute resolutions as factors eroding confidence in the country’s fiscal management.
This downgrade by Moody’s serves as a stark warning for the United States’ government to address its fiscal challenges promptly and find bipartisan solutions. Failure to do so could potentially have long-lasting consequences on the nation’s economy and its standing in the global financial market.
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