Moody's has revised its outlook on the U.S. credit rating from 'stable' to 'negative'.
Political polarization within the U.S. Congress is seen as a potential obstacle to fiscal planning.
The Biden administration has blamed 'congressional Republican extremism and dysfunction' for the downgrade.
The change is attributed to large fiscal deficits and a decline in debt affordability.
The federal government's budget deficit has jumped to $1.7 trillion in the budget year that ended on September 30.
Moody's Investors Service, a prominent credit rating agency, has revised its outlook on the U.S. government's credit rating from 'stable' to 'negative'. This decision is primarily attributed to the nation's large fiscal deficits and a decline in debt affordability. Despite the change in outlook, Moody's has maintained the U.S.'s AAA credit rating, which is the highest possible rating.
The agency has also expressed concerns about the ongoing political polarization within the U.S. Congress. This polarization is perceived as a potential obstacle to reaching a consensus on a fiscal plan, which could further impact the nation's fiscal strength. The federal government's budget deficit has reportedly jumped to $1.7 trillion in the budget year that ended on September 30, up from $1.38 trillion the previous year.
The change in outlook has sparked reactions from the Biden administration, with a White House spokesperson attributing the downgrade to 'congressional Republican extremism and dysfunction'. The administration has defended its economic agenda, asserting that it will enhance the growth, productivity, and competitiveness of the U.S. economy. The funding for this agenda is expected to be sourced from increased taxes on the wealthy and corporations.
Despite the negative outlook, Treasury securities remain the world's preeminent safe and liquid asset. However, a reduced outlook raises the risk that Moody's could eventually strip its AAA rating from the U.S., which could lead to higher interest rates on Treasury bills and notes.
The rating agency also highlighted the risk of continued political polarization within the US Congress, which could prevent successive governments from reaching consensus on a fiscal plan.
Treasury securities are the world's preeminent safe and liquid asset.
The Biden administration rejected the downgrade, blaming the Republican Party for the downgrade and accusing them of holding the economy hostage by refusing to cooperate on funding and debt ceiling issues.
The administration defended its economic agenda, stating it will boost growth, productivity, and competitiveness of the US economy, and be paid for by raising taxes on the wealthy and corporations.
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The Biden administration has rejected the Moody's downgrade, saying that it disagrees with the shift to a negative outlook and that the US economy remains strong and resilient. The administration has blamed the Republican Party for the downgrade, calling it a consequence of the Republican 'extremism and dysfunction' and accusing them of holding the economy hostage by refusing to cooperate on the funding and debt ceiling issues.