The US debt outlook was downgraded by Moody’s on Friday, from stable to negative, just one week before the pivotal budget deliberations in Congress.
The agency has kept its Aaa grade for US government debt in place for the time being.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’s fiscal deficits will remain very large, significantly weakening debt affordability,” the agency said.
The US Treasury immediately voiced its disagreement with Moody’s decision.
“The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset,” Deputy Secretary of the Treasury Wally Adeyemo in a statement.
“The Biden Administration has demonstrated its commitment to fiscal sustainability, including through the more than $1 trillion in deficit reduction included in the June debt limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade.”
When the US budget deficit for the fiscal year 2023 that ends on September 30 was released last month, it had grown to $1.7 trillion.
The US government’s cost of debt has skyrocketed as a result of interest rate hikes by the US central bank to combat inflation; in the most recent fiscal year, Washington paid $162 billion more in interest than it did in 2022.
The fact that Moody’s is the only significant agency to keep its rating for US sovereign debt at its highest level highlights the possible economic risk to the US should an agreement to continue funding the government not be reached in a week.
Government funding runs out at midnight on Friday into Saturday, and neither the Republican-led House of Representatives nor the Democratic-controlled Senate have enacted a bill to extend it.
In the event that an agreement is not reached by November 17, the greatest economy in the world would experience a government shutdown.
