Finance

US Credit-Rating Outlook Changed to Negative by Moody’s

The US was threatened with the loss of its last top credit rating on Friday, as Moody’s Investors Service signaled it was inclined to downgrade the nation because of wider budget deficits and political polarization.

The rating assessor lowered the outlook to negative from stable while affirming the nation’s rating at Aaa, the highest investment-grade notch. Amid higher interest rates, without measures to reduce spending or boost revenue, fiscal deficits will likely “remain very large, significantly weakening debt affordability,” Moody’s said.

“Interest rates have shifted materially and structurally higher,” William Foster, a senior credit officer at Moody’s, said in an interview. “This is the new environment for rates. Our expectation is that these higher rates and deficits around 6% of GDP for the next several years, and possibly higher, means that debt affordability will continue to pressure the US.”

 

Moody’s is the only of the three main credit companies with a top rating on the US after Fitch Ratings downgraded the US government in August following the latest debt-ceiling battle. S&P Global Ratings stripped the US of its top score in 2011 amid that year’s debt-limit crisis.

Since Fitch’s move, Congress was paralyzed by the ouster of the House speaker and weeks spent by Republicans trying to elect a new one. Also, a government shutdown was averted at the last minute and the possibility of another closure is one week away.

The new negative outlook covers “all the risks around another government shutdown,” Foster said.

Meanwhile, long-term Treasury yields have jumped to the highest levels in 16 years, which some analysts blamed partly on concern over increasing debt. Data showed the deficit effectively doubled to $2 trillion in the latest fiscal year.