The United States is in danger of losing its top-tier credit rating after Moody’s Investors Service downgraded the nation’s debt outlook to negative, raising the possibility of a further downgrade if the US does not take effective fiscal policy measures. This move increases the chances of a credit rating downgrade, which could potentially hurt Americans’ investment portfolios and make it more expensive for them to borrow money. The nation’s diminished fiscal strength, driven by extreme partisanship in Washington, is cited as a key factor behind this action.
The political polarization and recent events in the US, including the near-default earlier this year and Congress’s inability to pass a comprehensive budget, have contributed to the negative sentiment around the government’s fiscal vulnerabilities. If Congress fails to pass a budget or stopgap funding bill by the November 17 deadline, there is a risk of a government shutdown. Moody’s anticipates that political polarization is likely to continue, making it extremely difficult to build political consensus and approve measures to reverse the widening fiscal deficits. This uncertainty and instability have contributed to Moody’s warning about the US’s fiscal prospects.
A potential credit rating downgrade could cause US Treasury yields to rise, affecting various types of debt, from mortgage rates to global contracts, and diminish the perception of the US debt as a safe haven. The next step for Moody’s is to undergo a more thorough review of US debt to determine if a downgrade is warranted, with reviews typically being completed within 30 to 90 days. These developments illustrate the potential financial implications and implications of the United States’ current fiscal situation, with further updates to come.
