Moody’s Investors Service has issued a warning of a potential credit downgrade for the United States, citing expanding budget deficits and heightened political polarization.
In a significant development, Moody’s has revised the nation’s outlook from stable to negative while maintaining its Aaa rating, the highest investment-grade level.
The agency emphasized that without decisive measures to curtail spending or enhance revenue, sustained large fiscal deficits would erode debt affordability, particularly in the face of elevated interest rates.
William Foster, a senior credit officer at Moody’s, noted the structural shift to higher interest rates, identifying it as the “new environment for rates.”
The analysis underscores that the confluence of higher rates and persistent deficits, projected at around 6% of GDP for the coming years, could exert ongoing pressure on the US debt situation.
Moody’s is presently the sole credit rating agency among the three major ones to assign a top rating to the US. Fitch Ratings downgraded the US government in August, and S&P Global Ratings withdrew its top score in 2011 during the debt-limit crisis.
The negative outlook issued by Moody’s encompasses concerns regarding potential government shutdowns, adding an additional layer of uncertainty.
The US also grapples with surging long-term Treasury yields, reaching levels not witnessed in 16 years, amid apprehensions about escalating debt. This move by Moody’s underscores an evolving fiscal risk, contributing to market unease.
The analysis by Moody’s anticipates federal interest payments relative to revenue and GDP to escalate significantly by 2033, reflecting the impact of prolonged higher interest rates.
This development comes as the US navigates a delicate period, including the potential for a government shutdown in mid-November and heightened political tensions ahead of the 2024 elections.
Moody’s decision to reconsider the US credit rating could have broader implications for financial markets, influencing investor sentiment and government borrowing costs.
