New York Times: Moody’s Changes U.S. Credit Outlook to ‘Negative’

Moody’s reaffirmed America’s credit rating at the highest AAA level but expressed concern about the nation’s fiscal trajectory amid congressional dysfunction.

The outlook on the credit rating of the United States was changed to “negative” from “stable” on Friday by the ratings firm Moody’s, which pointed to the nation’s worsening fiscal position and political polarization as long-term concerns for America’s economy.

The change falls short of a downgrade to America’s credit rating, which Moody’s maintained at the highest AAA level. But it is another black mark for the economy and underscores the threat posed by rising interest rates, a mounting debt burden and a polarized Congress that has been unable to agree on ways to reduce America’s budget deficit.

In August, Fitch lowered its U.S. long-term rating to AA+ from its top mark of AAA. That downgrade, two months after the United States narrowly avoided defaulting on its debt, was the second in America’s history.

While Moody’s move is not a downgrade, it could present a political problem for President Biden, who has been under attack by Republicans over his handling of the economy, including America’s budget deficit. Republicans have been pushing for severe spending cuts to reduce the gap between what America spends and what it earns in tax revenue. Mr. Biden has proposed reducing future deficits by expanding the economy and raising taxes on high earners and corporations.

The federal government faces the prospect of a shutdown next week if Republicans and Democrats in Congress cannot agree on a spending plan. 

Moody’s suggested on Friday that it did not see an immediate path for the United States to solve its fiscal predicament.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” Moody’s said in a statement. “Continued political polarization within U.S. 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.”

Moody’s said it had declined to downgrade the rating because of the United States’ “formidable credit strengths,” noting the resilience of the economy, the strength of America’s economic institutions and the role of the dollar as the world’s reserve currency.

The announcement was made hours after Treasury Secretary Janet L. Yellen concluded meetings with her Chinese counterpart, Vice Premier He Lifeng, in San Francisco. After the meetings, she said she had explained the Biden administration’s deficit-reduction efforts to the officials from China, which is one of the biggest U.S. creditors.