Moody’s Changes U.S. Credit Outlook to Negative

Moody’s Changes U.S. Credit Outlook to Negative

U.S. Credit Rating Outlook Changed from “stable” to “negative” on Friday by ratings firm Moody’s, which highlighted the country’s deteriorating fiscal situation and political polarization as long-term concerns for the U.S. economy.

The change does not amount to a downgrade of the U.S. credit rating, which Moody’s has maintained at the highest AAA level. But it’s another black mark for the economy and underscores the threat posed by rising interest rates, the growing debt burden and a polarized Congress unable to agree on ways to reduce the U.S. budget deficit .

In August, Fitch lowered the long-term rating of the United States from AAA to AA+. This downgrade, two months after the United States narrowly avoided debt default, was the second in U.S. history.

While Moody’s decision does not constitute a downgrade, it could pose a political problem for President Biden, who has been attacked by Republicans for his handling of the economy, including the U.S. budget deficit. Republicans have pushed for severe spending cuts to narrow the gap between what America spends and what it earns in tax revenue. Mr. Biden has proposed reducing future deficits by growing the economy and raising taxes on high earners and businesses.

The federal government faces a shutdown next week if congressional Republicans and Democrats fail to agree on a spending plan.

Moody’s suggested Friday that it sees no immediate way for the United States to resolve its difficult fiscal situation.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that U.S. budget deficits will remain very large, significantly weakening the debt affordability,” Moody’s said in a statement. “Continuing political polarization in the US Congress increases the risk that successive governments will fail to reach consensus on a fiscal plan to slow the decline in debt affordability. »

Moody’s said it declined to downgrade the rating due to the “tremendous credit strength” of the United States, emphasizing the resilience of the economy, the strength of U.S. economic institutions and the role of the dollar as a currency world reserve.

The announcement came hours after Treasury Secretary Janet L. Yellen concluded her meetings with her Chinese counterpart, Vice Premier He Lifeng, in San Francisco. After the meetings, she said she explained the Biden administration’s deficit reduction efforts to officials in China, which is one of the United States’ largest creditors.

Treasury and White House officials said they disagreed with Moody’s change in outlook and blamed Republicans for the dysfunction.

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

Wally Adeyemo, deputy Treasury secretary, defended Mr. Biden’s handling of the economy and said the administration was committed to fiscal sustainability.

“The U.S. economy remains strong and Treasury securities are the world’s most secure and liquid asset,” Adeyemo said in a statement.

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David B.Otero

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