By changing the future outlook to negative… Moody’s angers Washington
In a move that sparked immediate criticism from the administration of US President Joe Biden, the credit rating agency Moody’s revised its outlook for the United States to “negative” from “stable,” pointing to the large fiscal deficit and low debt sustainability.
This move follows the downgrade of the US sovereign rating by another rating agency, Fitch, this year, which came after months of political maneuvering or so-called “brinkmanship” around the US debt ceiling.
Federal spending and political polarization in Congress have been a growing concern for investors, contributing to a selloff that pushed U.S. government bond prices to their lowest levels in 16 years.
“It is difficult to disagree with this logic, as there is no plausible expectation of fiscal rationalization any time soon… the deficit will remain large… and as higher interest costs take a larger share,” said Christopher Hodge, chief US economist at Natixis. “Greater than the budget, the debt burden will continue to grow.”
The rating agency said in a statement that “continued political polarization” in Congress increases the risk that lawmakers will not be able to reach consensus on a fiscal plan to slow the decline in debt sustainability.
She stressed that the decision came in the context of rising interest rates, without taking effective financial policy measures to reduce government spending or increase revenues.
“Downside risks to the financial strength of the United States have increased and may no longer be fully offset by the nation’s unique credit strength,” said William Foster, Moody’s Senior Vice President.
He added, “In the context of high interest rates, and in the absence of effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects the US fiscal deficit to remain very large, which would significantly weaken debt sustainability.”
Republicans, who control the US House of Representatives, expect to issue a temporary spending measure on Saturday aimed at avoiding a partial government shutdown by keeping federal agencies open when current funding expires next Friday.
Moody’s is among the three major rating agencies that maintain the highest rating for the US government. Fitch changed its rating from AAA to AA+ in August, joining Standard & Poor’s, which has rated AA+ since the 2011 crisis under former President Barack Obama.
Despite changing its outlook, indicating the possibility of downgrading the rating in the medium term, Moody’s maintained America’s rating at Aaa, reflecting the tremendous credit strengths of the United States, which still maintains its credit standing.
reaction
Immediately after Moody’s decision was issued, White House spokeswoman Karine Jean-Pierre said the change was “yet another result of Republican extremism in Congress and dysfunction in the performance of their duties.”
Deputy Treasury Secretary Wally Adeyemo said in a statement: “While Moody’s statement maintains the US rating at Aaa, we disagree with the shift to a negative outlook,” stressing that the US economy remains strong, and Treasury bonds are among the most prominent assets. Safe in the world.
Adeyemo said that the Biden administration has demonstrated its commitment to fiscal sustainability, in deficit reduction measures in an agreement reached in June with Congress on raising the US debt ceiling, and Biden’s proposal to reduce the deficit by about $2.5 trillion over the next decade.
For his part, US House of Representatives Speaker Mike Johnson said that Moody’s decision highlights the failure of what he called Biden’s “reckless spending agenda.”
“Our $33.6 trillion debt is unsustainable and poses a threat to our national security and economy,” he said in a statement. “We will fight to put our financial affairs in order.”
The Democratic-led House and Senate must agree on a tool that Biden can sign into law before current funding expires on November 17.
Treasury yields have risen this year on expectations that the Federal Reserve will keep monetary policy tight, as well as on financial concerns.
Moody’s said the sharp rise in Treasury yields “has increased pre-existing pressures on US debt sustainability.”
Moody’s downgrade may exacerbate financial concerns, but investors are skeptical that it will have a tangible impact on the US bond market, which is seen as a safe haven.
However, Quincy Crosby, chief global strategist at LPL Financial, said, “It is a reminder that the clock is ticking and time is running out and markets are getting closer and closer to understanding that we may be going into another period of drama that could ultimately lead to a government shutdown.”
Moody’s decision also comes as Biden, who is seeking re-election in 2024, has seen his support decline sharply in the polls.
A New York Times-Siena magazine poll published Sunday showed Biden trailing former President Donald Trump, the Republican front-runner, in five of six swing states: Nevada, Georgia, Arizona, Michigan and Pennsylvania. Biden was ahead of Trump in Wisconsin. The results of those six states will help determine the winner of the presidential election.
Moody’s move will also increase pressure on Republicans in Congress to pass funding legislation to avoid a partial government shutdown.
The US economy is heading into a state of great uncertainty
#decision #Moodys #angers #Washington
2023-11-11 07:07:18
