Moody’s Shifts U.S. Credit Outlook to ‘Negative’

Moody’s, the credit rating agency, revised the outlook on the credit rating of the United States from “stable” to “negative” on Friday, citing the nation’s deteriorating fiscal position and political polarization as long-term concerns for the economy.

While this adjustment falls short of an actual downgrade, it highlights the threats posed by rising interest rates, a growing debt burden, and a Congress marked by deep divisions, which has struggled to reach consensus on addressing America’s budget deficit.

Moody’s maintained the United States’ credit rating at the highest AAA level, avoiding a downgrade similar to the one issued by Fitch in August, when it lowered the U.S. long-term rating to AA+ from AAA. Fitch’s move followed closely on the heels of a near-default on the U.S. debt, marking the second downgrade in American history.

Although Moody’s decision doesn’t constitute a downgrade, it may present a political challenge for President Biden, who has faced criticism from Republicans regarding his economic management, particularly concerning America’s budget deficit. Republicans advocate for substantial spending cuts to narrow the gap between government spending and tax revenue, while President Biden has proposed reducing future deficits through economic expansion and tax increases on high earners and corporations.

The looming possibility of a federal government shutdown next week further complicates the economic landscape, pending an agreement on a spending plan between Republicans and Democrats in Congress.

Despite these concerns, Moody’s refrained from an outright downgrade, emphasizing the “formidable credit strengths” of the United States. The agency cited the resilience of the economy, the strength of economic institutions, and the role of the U.S. dollar as the world’s reserve currency as factors supporting its decision.

The announcement came shortly after Treasury Secretary Janet L. Yellen concluded meetings with Chinese Vice Premier He Lifeng in San Francisco. Yellen explained the Biden administration’s efforts to reduce the deficit to Chinese officials, highlighting the interconnectedness of the two nations as major economic partners.

In essence, Moody’s revised outlook underscores the economic challenges facing the United States, signaling the need for effective fiscal policy measures, bipartisan cooperation, and a resolution to the political polarization that has impeded progress on addressing the nation’s fiscal concerns.