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The outlook for the creditworthiness of the United States has changed down from “negative” to “stable” on Friday by ratings agency Moody’s, which pointed to the country’s deteriorating fiscal position and political polarization as long-term concerns for the U.S. economy.
This change is not sufficient to lower the US credit rating, which Moody’s maintained at the highest AAA level. But it is another black mark for the economy and underlines the threat posed by rising interest rates, a rising debt burden and a polarized Congress that has failed to agree on ways to reduce the US budget deficit.
In August, Fitch downgraded its US long-term rating from AAA to AA+. This credit rating downgrade, two months after the United States narrowly avoided defaulting on its debt, was the second in America’s history.
While Moody’s move is not a downgrade, it could pose a political problem for President Biden, who is under attack by Republicans over his handling of the economy, including the U.S. budget deficit. Republicans have pushed for severe cuts to narrow the gap between what America spends and what it earns in tax revenue. Mr. Biden has proposed reducing future deficits by expanding the economy and raising taxes on high earners and corporations.
The federal government faces the prospect of a shutdown next week if Republicans and Democrats in Congress cannot agree on a spending plan.
Moody’s suggested Friday that it sees no immediate path for the United States to solve its budget problem.
“In the context of higher interest rates, without effective fiscal measures to reduce government spending or increase revenues, Moody’s expects US budget deficits to remain very large, significantly weakening debt affordability,” Moody’s said in a statement. “Ongoing political polarization within the US Congress increases the risk that successive administrations will fail to reach consensus on a budget plan to slow the decline in debt affordability.”
Moody’s said it had declined to downgrade the rating because of the United States’ “formidable credit strength,” pointing to the resilience of the economy, the strength of U.S. economic institutions and the dollar’s role as the world’s reserve currency.
The announcement was made hours after Treasury Secretary Janet L. Yellen wrapped up meetings with her Chinese counterpart, Deputy Prime Minister He Lifeng, in San Francisco. After the meetings, she said she explained the Biden administration’s efforts to reduce the deficit to officials from China, one of the largest U.S. creditors.
Treasury and White House officials said they disagreed with the shift in Moody’s outlook and blamed Republicans for creating dysfunction.
“Moody’s decision to change America’s outlook is yet another consequence of Republican extremism and dysfunction in Congress,” White House Press Secretary Karine Jean-Pierre said in a statement.
Wally Adeyemo, the deputy treasury secretary, defended Mr. Biden’s stewardship of the economy and said the administration was committed to fiscal sustainability.
“The U.S. economy remains strong, and government bonds are the world’s safest and most liquid assets,” Adeyemo said in a statement.
