Moody's Investors Service has downgraded the outlook on the U.S. government's ratings from stable to negative. The Friday decision underscores growing apprehensions about the nation's ability to manage its finances in an environment of escalating interest rates and substantial deficits.
While maintaining the U.S.'s Aaa long-term issuer and senior unsecured ratings, Moody's highlighted the challenges posed by large fiscal deficits and the impact of higher interest rates on debt affordability, CNBC reports.
The agency expressed concerns that without effective measures to curb government spending or increase revenues, these deficits would continue to undermine the nation's fiscal strength.
Political dynamics in Washington, particularly the ongoing polarization within Congress, were also cited as factors contributing to the negative outlook. Moody's warned this division raises the risk of an inability to reach a consensus on a fiscal plan, further weakening the U.S.'s debt affordability, CNBC said.
Despite these concerns, Moody's said it expects the U.S. to maintain its robust economic strength, suggesting that positive growth could potentially slow the decline in debt affordability.
Reacting to Moody's announcement, Deputy Secretary of the Treasury Wally Adeyemo defended the strength of the American economy. He emphasized that U.S. Treasury securities "are the world’s preeminent safe and liquid asset," disagreeing with the agency's shift to a negative outlook, CNBC reported.
The U.S. Congress faces the threat of a government shutdown, with funding only being secured until Nov. 17. House Speaker Mike Johnson (R-La.) plans to introduce a Republican funding proposal, aiming for a vote on the measure by Tuesday.
The Moody's downgrade comes on the heels of a report from Wells Fargo economists that predicts the United States will face intensifying economic vulnerabilities in 2024, with growth expected to decline materially from 2023.
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