MNI: Moody's Cuts Last U.S. AAA Rating Outlook To Negative

The last major ratings firm to rank U.S. government as a AAA credit cut its outlook on America's debt to negative late Friday, citing the absence of steps to reduce the government's expanding deficit.

Moody's maintained its AAA rating for U.S. debt but said the outlook is now negative, which the firms says indicates "its rating of the Security Issuer may be lowered over the intermediate to longer term."

"The key driver of the outlook change to negative is Moody's assessment that the downside risks to the US' fiscal strength have increased and may no longer be fully offset by the sovereign's unique credit strengths," Moody's said in a release. "In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the U.S.' fiscal deficits will remain very large, significantly weakening debt affordability."

It also cited increasing political acrimony as a reason for concern. "Continued political polarization within the U.S. 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."

Deputy Secretary of the Treasury Wally Adeyemo responded by saying: "We disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset. The Biden Administration has demonstrated its commitment to fiscal sustainability, including through the more than USD1 trillion in deficit reduction included in the June debt limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly USD2.5 trillion over the next decade.”

Long-term Treasury yields spiked in recent months in part because of concerns about the deficit and the supply of Treasuries required to fund it.

S&P downgraded the United States in 2011 while FitchRatings cut U.S. debt in August of this year.