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Moody’s cuts outlook on U.S. credit rating to negative from stable

by NORTH CAROLINA DIGITAL NEWS

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Moody’s Investors Service late Friday cut its outlook on the U.S. sovereign credit rating to negative from stable, citing higher interest rates and doubts about the government’s ability implement effective fiscal policies.

A negative outlook means that a rating may be cut in the future, but doesn’t mean that it will be. Moody’s continues to rate U.S. sovereign debt Aaa — the only one of the three major credit-rating companies to maintain a triple-A rating on the world’s largest economy.

“The sharp rise in U.S. Treasury bond yields this year has increased pre-existing pressure on U.S. debt affordability. In the absence of policy action, Moody’s expects the U.S.’s debt affordability to decline further, steadily and significantly, to very weak levels compared to other highly-rated sovereigns, which may offset the sovereign’s credit strengths explained below,” the company said, in a statement.

In response to the announcement, a Treasury Department official said the agency disagrees with the warning sounded by Moody’s.

“While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset,” said Deputy Secretary of the Treasury Wally Adeyemo, in a statement.

He went on to say that the Biden administration’s more than $1 trillion in deficit reduction included in the June debt limit deal and budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade put the country on sounder footing than the Moody’s outlook would suggest.

Moody’s said the rating could be cut if the company concludes that policy makers were unlikely to respond to the country’s growing fiscal challenges over the medium term, through measures to increase government revenue or structurally reduce spending to slow the deterioration in debt affordability.

Fitch Ratings cut its top U.S. credit rating to AA+ from AAA in August. S&P cut its AAA rating in 2011 after an earlier budget showdown.

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