Moody’s said the U.S. budget deficit is likely to remain very high as interest rates rise and government spending increases, especially on social programs and infrastructure.
Reasons for Moody’s downgrade
increase in interest rates: Moody’s cited a sharp rise in debt servicing costs as the main reason for the downgrade. Interest rates continue to rise in the United States, directly impacting the cost of servicing the national debt.
Political polarization: Moody’s also cited growing political polarization in the United States as a factor in the decision. This polarization is seen as a risk to the country’s ability to effectively manage fiscal policy and address long-term debt issues.
Large budget deficit: The United States has a large budget deficit, which contributes to its declining ability to pay debt. This situation has raised concerns about the sustainability of the country’s fiscal path.
Debt affordability concerns: The combination of rising interest rates and large budget deficits is making U.S. government debt less affordable. This decline is a major concern for credit rating agencies like Moody’s.
The downgrade comes as the US faces a possible government shutdown after the Republican-led House of Representatives, Democratic-led Senate, and President Biden are unable to agree on a funding bill by a deadline of November 18, 2023. It was conducted. The U.S. also faces an impending debt ceiling crisis, with the Treasury warning that it will run out of money to pay by December 3, 2023 unless Congress increases the borrowing limit.
of Biden administration rejects Moody’s downgradeHe says he is opposed to the move. negative outlook The U.S. economy remains strong and resilient. The administration blamed Republicans for the downgrade, saying it was the result of their “extremism and dysfunction” and accusing them of holding the economy hostage by refusing to cooperate on funding and the debt ceiling.
Shortly after Moody’s announcement, White House press secretary Karine Jean-Pierre said the changes were “another result of extremism and dysfunction in Congressional Republicans.”
“While Moody’s statement maintains the US’s AAA rating, we do not agree with the change to a negative outlook.The US economy remains strong and Treasury securities are one of the world’s safest and most liquid assets. ,” Deputy Treasurer Wally Adeyemo said in a statement.
The administration also defends its economic policies, saying they will increase the growth, productivity and competitiveness of the U.S. economy and will be paid for by increasing taxes on the wealthy and corporations. The administration urged Congress to pass a $1.75 trillion social spending and climate bill, known as the Build Back Better Act, and a $1.2 trillion bipartisan infrastructure bill, which will help America recover. said that it is extremely important for the future.
Moody’s downgrade could exacerbate fiscal concerns, but investors said they were skeptical it would have a material impact on the U.S. bond market, which is considered a safe haven because of its depth and liquidity. .
However, “this signals that the market is coming ever closer to the realization that the clock is ticking and we may be entering a period of new drama that could ultimately lead to a government shutdown.” It’s a reminder,” said Quincy Crosby, the firm’s chief global strategist. LPL Financial.
The Moody’s downgrade raised concerns and questions about the fiscal health and political stability of the United States, as well as its role and reputation in the world. The downgrade also increased pressure and urgency on the US government to resolve budget and debt impasses and implement economic policy. The downgrade also highlighted the challenges and opportunities for the United States to address long-term structural issues such as aging, income inequality, climate change, and global competition.
(Information provided by agency)