Moody's Investors Service has changed the outlook of the United States' debt to negative, bringing the country one step closer to losing its last perfect credit rating. While the move doesn't automatically result in a credit downgrade, it increases the likelihood of such an action, as reported by CNN.
The prospect of a U.S. credit downgrade could have significant repercussions, affecting Americans' investment portfolios, increasing borrowing costs, and making it more expensive for the government to manage its debts. If Moody's were to eventually downgrade U.S. debt, these effects could be more pronounced.
Moody's attributes the change in outlook to the nation's diminished fiscal strength, a consequence of extreme partisanship in Washington, according to a statement reported by CNN.
”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,” the statement said.
US government officials pushed back on the move, citing the liquidity of US Treasuries, among other factors.
“We disagree with the shift to a negative outlook,” Deputy Secretary of the Treasury Wally Adeyemo said in a statement.
“The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
Moody's stands alone among the trio of major credit rating agencies in granting the United States an exceptional AAA rating, a distinction it has upheld since as far back as 1917, according to CNN.
Back in 2011, Standard and Poor's took the unprecedented step of downgrading the US, marking the first instance of such a downgrade, a consequence of the intense debt ceiling standoff at that time.
Adding to the array of credit rating adjustments, Fitch Ratings recently lowered America's credit rating following the latest episode of the debt ceiling debate in August, as reported by CNN.
(With Agency Inputs)
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