Moody’s Lowers U.S. Ratings Outlook to Negative Amid Fiscal Concerns and Political Turmoil

Moody’s Investors Service has adjusted its outlook on the United States’ government rating from stable to negative, citing increasing risks to the nation’s fiscal strength. Despite this change, the agency affirmed the U.S. long-term issuer and senior unsecured ratings at Aaa. The primary concerns highlighted by Moody’s include the expectation of large fiscal deficits due to high interest rates and insufficient fiscal policy measures to curb government spending or boost revenues.

A significant factor contributing to this revised outlook is the ongoing political polarization in Congress, which, according to Moody’s, heightens the risk of the government’s inability to achieve consensus on a fiscal plan to improve debt affordability. However, Moody’s maintained the Aaa rating based on its anticipation that the U.S. will continue to demonstrate exceptional economic strength and the possibility of positive growth surprises that could slow down the deterioration in debt affordability.

Deputy Secretary of the Treasury Wally Adeyemo expressed disagreement with Moody’s shift to a negative outlook, emphasizing the strength of the American economy and the status of Treasury securitiesUnited States Treasury securities are debt instruments issued by the United States government to finance its spending. Treasury securities come in a variety of forms, including bil... More as a globally recognized safe and liquid asset.

This downgrade in outlook occurs amidst the backdrop of another potential government shutdown, with the current government funding set to expire on November 17. Tensions in Washington are evident as lawmakers struggle to agree on a new funding bill. Newly elected House Speaker Mike Johnson has proposed a government funding plan that includes a laddered continuing resolution, but this plan faces opposition from the White House and the Democratic-controlled Senate. The White House has attributed Moody’s decision to the extremism and dysfunction of Congressional Republicans.

This development follows a similar action by Fitch in August, which downgraded the U.S. long-term foreign currency issuer default rating, citing expected fiscal deterioration, governance erosion, and an increasing debt burden, along with concerns over political feuding and debt-limit standoffs.

Bottom-line: Moody’s decision to lower the U.S. ratings outlook reflects deepening concerns over the nation’s fiscal health and political discord, potentially impacting the government’s ability to manage its finances and maintain economic stability.