Moody’s Downgrades U.S. Credit Rating Outlook to Negative

Moody’s Investors Service, one of the major credit rating firms, has changed its outlook on the United States’ credit rating to negative from stable. This decision was primarily driven by the increasing federal deficit.

It is important to note that Moody’s has retained its top Aaa rating for U.S. credit, distinguishing itself from other credit rating agencies like S&P and Fitch. Both S&P and Fitch had downgraded U.S. credit in previous years.

Moody’s justified its ratings action by stating, “The downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.” Additionally, Moody’s predicts that without effective fiscal policy measures to address government spending and revenues, the U.S.’s fiscal deficits will continue to be substantial. This, in turn, significantly weakens debt affordability for the country.

Furthermore, political polarization within the U.S. Congress has become a cause for concern. This raises the risk that future governments will struggle to reach a consensus on a fiscal plan to tackle the decline in debt affordability.

Despite these concerns, Moody’s has maintained its top rating for U.S. debt. The agency believes that the U.S.’s formidable credit strengths, including exceptional economic strength, high institutional and governance strength, and the unique and central roles of the U.S. dollar and Treasury bond market in the global financial system, continue to support the sovereign's rating.