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Why Moody’s Cut Its Outlook for the US Economy


Key Takeaways

  • Moody’s credit rating agency has downgraded the U.S. economic outlook to “negative” from “stable.”
  • The move brought immediate criticism from President Joe Biden’s administration.
  • It is the latest in a series of issues flagged by rating agencies about the strength of the financial status of the United States.

Rating agency Moody’s rattled Washington by downgrading the country’s economic outlook to “negative” from “stable,” citing growing fiscal deficits.

In its latest report, the ratings agency said the U.S. Aaa rating had turned negative due to the country’s declining fiscal strength. The group said “with higher interest rates and without effective fiscal policy measures to reduce government spending or increase revenues,” deficits would remain large and weaken the country’s debt affordability.

Moody’s said in a statement that “continued political polarization” in Congress raises the risk that lawmakers might not be able to find common ground on a plan to slow the decline in debt affordability. Moody’s said this year’s surge in Treasury yields “has increased pre-existing pressure on US debt affordability.”

“Any type of significant policy response that we might be able to see to this declining fiscal strength probably wouldn’t happen until 2025 because of the reality of the political calendar next year,” William Foster, a senior vice president at Moody’s, told Reuters.

The decision by Moody’s follows an August downgrade in the U.S. credit rating by Fitch to AA+ from AAA. Fitch became the second agency after Standard and Poor’s to reduce the credit rating of the United States, citing fiscal deterioration and repeated debt ceiling negotiations, with two deals already going to the wire this year and threatening a shutdown of the government.

President Joe Biden’s administration responded to the Moody’s downgrade with Deputy Treasury Secretary Wally Adeyemo saying in a statement, “We disagree with the shift to a negative outlook.”

“The American economy remains strong, and Treasury securities are the world’s pre-eminent safe and liquid asset,” he added.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.