Ongoing large federal deficits combined with a lack of confidence that Washington is going to do anything anytime soon to reduce those deficits has prompted the influential Moody’s Investors Service to downgrade the nation’s credit rating.
In so doing, the New York-based bond credit rating service lowered the US’s credit rating from stable to negative.
The move, notes the New York Times, is seen as “another black mark for the economy.”
Adding to the Moody’s decision is the specter of ongoing rising interest rates, and the looming November 17 government shutdown should Congress fail to pass a budget by then.
“Moody’s expects that the fiscal deficits of the US will remain very large, significantly weakening debt affordability,” the ratings service said.
“Continued political polarization within the 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,” the Moody’s narrative added.
Moody’s also remarked that “building political consensus around a comprehensive, credible multi-year plan to arrest and reverse widening fiscal deficits through measures that would increase government revenue or reform entitlement spending appears extremely difficult.”
“Investors,” remarked the Wall Street Journal in explaining the Moody’s announcement, “have grown wary that the US economy can handle its rising interest expenses without a major change in federal spending, taking out their concerns on the market for US government debate.”
The Moody’s action sparked a negative response from the White House, with Deputy Treasury Secretary Wally Adeyemo remarking: “We disagree with the shift to a negative outlook.”
In a statement, Adeyemo added: “The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
Meanwhile, House Speaker Mike Johnson has released a proposal designed to forestall a government shutdown that will include funding for some agencies lasting well into the middle of January.
In revealing his spending plan, Johnson said he hoped to “stop the absurd holiday-season omnibus tradition of massive, loaded-up spending bills introduced right before the Christmas recess.”
If approved, Johnson’s plan would extend funding for the Department of Housing and Urban Development, as well as planned and ongoing military construction projects.
By Garry Boulard