Moody's, a leading global integrated risk assessment firm, changed the United States' credit rating outlook to "negative" after markets closed on Friday, stirring concerns despite affirming the country's credit rating at the highest AAA level.
The change in the credit rating outlook, from "stable" to "negative," was attributed to the worsening fiscal position and increasing political polarization in the US. Although this adjustment does not constitute a downgrade in the credit rating itself, it serves as a stark reminder of the economic challenges looming in the country.
Moody's Decision in Changing US Credit Rating
According to Reuters, Moody's decision comes as President Joe Biden, who is seeking reelection in 2024, has seen his support fall sharply in the polls.
A New York Times/Siena poll released on Sunday showed him trailing former President Donald Trump, the leading Republican candidate, in five of six battleground states: Nevada, Georgia, Arizona, Michigan, and Pennsylvania.
Biden was ahead of Trump in Wisconsin. The outcome of these six states will help determine who wins the presidential election. This follows Fitch's downgrade of the US long-term rating to AA+ from AAA in August, marking the second downgrade in the nation's history.
The timing of Moody's decision could pose a political challenge for Biden, who faces criticism from Republicans regarding his handling of the economy. The ongoing tug-of-war between Republicans advocating severe spending cuts and Biden's proposals to stimulate the economy through tax adjustments adds complexity to the situation.
"In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the US' fiscal deficits will remain very large, significantly weakening debt affordability ," Moody's said in a statement posted in New York Times.
"Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability," it added.
According to the New York Times, Moody's said it had declined to downgrade the rating because of the US' "formidable credit strengths," noting the economy's resilience, the strength of America's economic institutions, and the role of the dollar as the world's reserve currency.
Treasury and White House Officials Expressed Disagreement With Moody's Shift in Outlook
Treasury and White House officials disagreed with Moody's shift in outlook and blamed congressional Republicans for creating dysfunction.
White House Press Secretary Karine Jean-Pierre said, "Moody's decision to change the US outlook is yet another consequence of congressional Republican extremism and dysfunction." Deputy Treasury Secretary Wally Adeyemo, on the other hand, has defended Biden's economic stewardship.
"The American economy remains strong, and Treasury securities are the world's pre-eminent safe and liquid asset," Adeyemo said in a press statement.
As the nation navigates these economic challenges, all eyes are on Washington, where the trajectory of fiscal policy will play a pivotal role in determining the future stability of the US economy.
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