Moody’s Lowers U.S. Credit Rating to Negative, Citing Large Federal Deficits

On November 10, 2023, Moody’s Investors Service lowered its outlook on the United States’ credit rating from “stable” to “negative.” While Moody’s reaffirmed the nation’s top credit rating of AAA, the negative outlook signals an increased risk of that rating being downgraded over the next one to two years. The two other major credit rating agencies, Standard & Poor’s (S&P) and Fitch Ratings, have both already downgraded the nation’s rating — S&P in 2011 and Fitch just a few months ago.

Moody’s stated two primary reasons for downgrading the outlook:

• Debt affordability — rising interest rates have caused the cost of financing the debt to rapidly increase. Furthermore, without policies in place to address the underlying drivers of the debt, Moody’s anticipates that federal deficits will remain very large.
• Political polarization — which will complicate the ability of policymakers to enact solutions to the nation’s fiscal challenges. Moody’s mentioned recent examples of polarization leading to an inability to govern such as the struggle of House Republicans to elect a speaker, threats of a partial government shutdown, and the political impasse around the debt ceiling debate in June.

When S&P lowered the sovereign credit rating for the United States more than a decade ago, it noted weakening “effectiveness, stability, and predictability of American policymaking and political institutions” as well as an insufficient fiscal stabilization plan for the medium-term. The recent downgrade from Fitch Ratings cited the nation’s high and rising debt, the lack of a plan to address the drivers of that debt, and the erosion of good governance.

Sovereign credit ratings assess the capacity and willingness that a borrower will default on its debt obligations. Now, all three major rating agencies have lowered their ratings or outlook for U.S. debt. These serious and credible warnings should send a strong message to policymakers about the need to address America’s unsustainable fiscal path.

Related: What The Fitch Downgrade Says About Our Fiscal Challenges

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