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Moody’s Downgrades U.S. Outlook to Negative, Citing Deficits, Political Polarization

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The White House is seen at dusk on September 30, 2023 in Washington, DC.

Samuel Corum | Getty Images

Moody’s Investors Service on Friday lowered its rating outlook for the U.S. government from negative to stable, highlighting growing risks to the country’s fiscal strength.

The rating agency affirmed U.S.’s long-term and senior unsecured issuer ratings at Aaa.

“In a context of higher interest rates, without effective fiscal policy measures to reduce public spending or increase revenues,” the agency said. “Moody’s expects US budget deficits to remain very large, which will significantly weaken debt affordability.”

The brinkmanship in Washington was also a contributing factor, Moody’s said.

“Continuing political polarization in the US Congress increases the risk that successive governments fail to reach consensus on a fiscal plan to slow the decline in debt affordability,” the ratings agency said .

Regarding maintaining the country’s rating at Aaa, Moody’s said it expects the United States to “retain its exceptional economic strength.” “Further positive growth surprises in the medium term could at least slow the deterioration of debt affordability,” the agency said.

“While Moody’s statement maintains the United States’ Aaa rating, we disagree with the move to a negative outlook,” Deputy Treasury Secretary Wally Adeyemo said in a statement. “The U.S. economy remains strong and Treasury securities are the world’s most secure and liquid asset.”

Moody’s decision to lower its outlook comes as Congress once again faces the looming threat of a government shutdown. For now, the government is funded through Nov. 17, but lawmakers in Washington remain at odds over a bill before the deadline.

Newly elected House Speaker Mike Johnson (R-La.) said he would release a Republican government funding plan on Saturday, a move that would give members time to read it before a vote scheduled for Tuesday. on the measurement.

But his plan to fund some parts of the government through Dec. 7 and others through Jan. 19, known as a staggered continuing resolution, or CR, died upon arrival in the White House and the Senate-controlled Senate. the Democrats.

“Moody’s decision to change the US outlook is yet another consequence of extremism and Republican dysfunction in Congress,” White House press secretary Karine Jean-Pierre said in a statement.

Last August, Fitch lowered the U.S. long-term foreign currency issuer default rating from AAA to AA+, citing “expected fiscal deterioration over the next three years” as well as erosion of governance and a growing debt burden.

Infighting in Washington was also a problem. “Repeated political clashes over the debt ceiling and last-minute resolutions have eroded confidence in fiscal management,” Fitch said at the time.

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