Moody’s Cuts US Outlook to “Negative” over Fiscal Risks and Political Polarization

International ratings agency Moody’s lowered its ratings outlook on the United States’ government from “Stable” to “Negative” due to rising risks to the fiscal strength. Still, Moody’s maintained the long-term issuer and senior unsecured ratings of the U.S. at Aaa rating.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” Mooday wrote. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”

“Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” Moody’s added. 

Despite the downgrade on the outlook, Moody’s expected the U.S. to retain its exceptional economic strength as there would be further positive growth surprises over the medium term that could slow the deterioration in debt affordability.