On the 10th (local time), international credit rating agency Moody’s downgraded the outlook for the US national credit rating from ‘stable’ to ‘negative’ due to increased risks to the US’ financial soundness and political polarization. This means that a rating downgrade is possible in the future. This is interpreted as a move that reflects the inevitable situation in which a federal government shutdown (temporary business suspension) will occur if the U.S. Congress fails to pass the 2024 budget by the 17th.
On this day, Moody’s maintained the U.S. national credit rating at ‘Aaa’, the existing highest rating, but lowered the rating outlook to ‘negative’. Moody’s explained the reason for the downgrade by saying, “Risks to financial soundness have increased and the unique credit strength of the United States no longer appears to be able to offset these.” He continued, “With interest rates rising, there are no effective measures to reduce federal government spending or increase revenues. “As the fiscal deficit remains at an enormous level, the federal government’s debt capacity is significantly weakened.” Moody’s decided to decide whether to adjust the U.S. credit rating within the next 30 to 90 days.
There was also concern about the extreme confrontation between the ruling Democratic Party and the opposition Republican Party over the budget plan. Moody’s determined that “as political polarization continues, the risk that the administration’s fiscal plan to slow down the weakening of debt capacity will not reach an agreement is increasing.”
Concerns about the U.S. fiscal deficit and shutdown are also increasing as Moody’s, the only one of the three major credit rating agencies that has maintained the U.S. national credit rating at the highest level, has hinted at the possibility of a rating downgrade. Earlier in August, another credit rating agency, Fitch, also downgraded the United States’ rating from ‘AAA’ to ‘AA+’ for similar reasons as Moody’s. Standard & Poor’s (S&P) has maintained the United States’ national rating at ‘AA+’ since 2011.
According to the Washington Post (WP), U.S. House Speaker Mike Johnson extended the budget for some sectors, such as defense, food, and transportation, until January 19 of next year to prevent a shutdown on the 11th, and the budget for the remaining sectors expired on February 2 of the same year. They announced a proposal to prevent a shutdown by continuing support until . However, the White House and the Democratic Party are opposing it because it does not include the Ukraine aid budget, and Republican hardliners are opposing it, saying that the scale of cuts in government spending is insignificant, so it appears that passage will not be easy.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.