STAMINA
Moderator
On Friday, Moody's Investors Service revised its outlook on the United States government from stable to negative, citing increasing risks to the nation's fiscal strength. The ratings agency maintained the U.S.'s long-term issuer and senior unsecured ratings at Aaa.
Moody's expressed concern about the potential impact of higher interest rates on the U.S. economy, emphasizing the necessity of effective fiscal policy measures to either reduce government spending or increase revenues. Without such measures, Moody's expects that the nation's fiscal deficits will persist, significantly compromising debt affordability. Political brinkmanship in Washington was identified as a contributing factor, with the agency highlighting the risk of ongoing political polarization hindering consensus on a fiscal plan to address declining debt affordability.
Despite maintaining the Aaa rating, Moody's stated that the U.S. must retain its exceptional economic strength to mitigate the deterioration in debt affordability. The agency suggested that positive growth surprises over the medium term could help slow this decline.
Deputy Secretary of the Treasury Wally Adeyemo disagreed with Moody's shift to a negative outlook, asserting the strength of the American economy and the global prominence of Treasury securities.
Moody's decision coincided with the looming threat of a government shutdown, as Congress grapples with funding issues. While the government is funded through November 17, lawmakers remain at an impasse over a bill before the deadline. House Speaker Mike Johnson (R-La.) plans to release a Republican government funding plan, proposing funding for certain parts of the government through Dec. 7 and other parts through Jan. 19. However, this plan, known as a laddered continuing resolution (CR), faces opposition in the White House and the Democratic-controlled Senate.
The White House press secretary, Karine Jean-Pierre, attributed Moody's negative outlook to Congressional Republican extremism and dysfunction. In August, Fitch had previously downgraded the U.S. long-term foreign currency issuer default rating to AA+ from AAA, citing expected fiscal deterioration, governance erosion, and a growing debt burden, with feuding in Washington contributing to the downgrade.
Moody's expressed concern about the potential impact of higher interest rates on the U.S. economy, emphasizing the necessity of effective fiscal policy measures to either reduce government spending or increase revenues. Without such measures, Moody's expects that the nation's fiscal deficits will persist, significantly compromising debt affordability. Political brinkmanship in Washington was identified as a contributing factor, with the agency highlighting the risk of ongoing political polarization hindering consensus on a fiscal plan to address declining debt affordability.
Despite maintaining the Aaa rating, Moody's stated that the U.S. must retain its exceptional economic strength to mitigate the deterioration in debt affordability. The agency suggested that positive growth surprises over the medium term could help slow this decline.
Deputy Secretary of the Treasury Wally Adeyemo disagreed with Moody's shift to a negative outlook, asserting the strength of the American economy and the global prominence of Treasury securities.
Moody's decision coincided with the looming threat of a government shutdown, as Congress grapples with funding issues. While the government is funded through November 17, lawmakers remain at an impasse over a bill before the deadline. House Speaker Mike Johnson (R-La.) plans to release a Republican government funding plan, proposing funding for certain parts of the government through Dec. 7 and other parts through Jan. 19. However, this plan, known as a laddered continuing resolution (CR), faces opposition in the White House and the Democratic-controlled Senate.
The White House press secretary, Karine Jean-Pierre, attributed Moody's negative outlook to Congressional Republican extremism and dysfunction. In August, Fitch had previously downgraded the U.S. long-term foreign currency issuer default rating to AA+ from AAA, citing expected fiscal deterioration, governance erosion, and a growing debt burden, with feuding in Washington contributing to the downgrade.
Have a great day.
