The United States is one step closer to losing its last perfect credit rating after Moody’s Investors Service changed the outlook of the nation’s debt to negative on Friday after markets closed.
While the move does not automatically mean it will downgrade America’s creditworthiness, it increases the chances.
The nation’s diminished fiscal strength, undone by extreme partisanship in Washington, was a key driver of the action, according to a statement from Moody’s.
”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’ fiscal deficits will remain very large, significantly weakening debt affordability,” the statement said.
Moody’s is the only one of the three major credit rating agencies to assign the United States an outstanding rating of AAA, which it has maintained since 1917.
Standard and Poor’s downgraded the United States for the first time in 2011, following the debt ceiling standoff then. In August, Fitch Ratings knocked America’s credit rating down after the most recent debt ceiling debate.
Moody’s cited multiple recent events that exemplify America’s extraordinary political divide, including the near-default earlier this year before Congress agreed to a debt limit increase.
The resulting ouster of House Speaker Kevin McCarthy, the first time in history a speaker was given the boot, and Congress’ inability to cement a replacement for weeks, were also included in Moody’s negative sentiment about the government’s ability to exercise fiscal responsibility, avoid another looming shutdown and work in a bipartisan manner to work on a reasonable budget.
“In Moody’s view, such political polarization is likely to continue,” the agency said. “As a result, 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.”
This story is developing and will be updated.
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