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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.
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.
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