Moody’s Investors Service changed its outlook on the U.S.’s credit rating to negative from stable late Friday. The ratings firm cited the federal deficit as a “key driver” behind the action.
Moody’s retained its top Aaa rating for U.S. credit, unlike the other major credit rating firms. S&P downgraded U.S. credit to AA+ in 2011. Fitch followed suit this past August.
In its ratings action, Moody’s said: “The downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.”
“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 agency added that politics was a concern, as well: “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.”
Despite the concerns, Moody’s held on to its top rating for U.S. debt: “The affirmation of the Aaa ratings reflects Moody’s view that, despite rising fiscal pressures and political risk, the US’ formidable credit strengths continue to preserve the sovereign’s rating, in particular exceptional economic strength, high institutional and governance strength, and the unique and central roles of the US dollar and Treasury bond market in the global financial system.
Moody’s announcement had a limited immediate impact on stocks. The
SPDR S&P 500 ETF Trust,
which tracks the S&P 500 index, was down 0.2% in after-hours trading Friday.
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