Moody’s Downgrades U.S. Sovereign Credit Outlook to Negative

Moody’s Investors Service has recently downgraded the outlook on the U.S. sovereign credit rating from stable to negative. This decision is primarily driven by concerns over higher interest rates and doubts regarding the government’s ability to effectively implement fiscal policies.

It is important to note that a negative outlook does not automatically mean a rating downgrade will occur, as Moody’s still rates U.S. sovereign debt as Aaa, making it the only one among the three major credit-rating agencies to maintain a triple-A rating.

According to Moody’s, the sharp rise in U.S. Treasury bond yields throughout this year has further intensified the existing pressure on U.S. debt affordability. Unless appropriate policy actions are taken, the company expects the affordability of U.S. debt to decline significantly, reaching weak levels compared to other highly-rated sovereigns. However, the company also acknowledges certain credit strengths possessed by the U.S. sovereign.

The rating could potentially be downgraded if Moody’s determines that policymakers are unlikely to address the country’s mounting fiscal challenges in the medium term. This would involve implementing measures to increase government revenue or structurally reduce spending in order to slow down the deterioration in debt affordability.

It is worth mentioning that Fitch Ratings downgraded the U.S.’s top credit rating from AAA to AA+ in August, while S&P had previously downgraded its AAA rating in 2011 following an earlier budget crisis.