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Moody’s Downgrades U.S. Credit Outlook

iStock-462525859 America Budget Debt Money

Credit-rating service Moody’s has changed its outlook for U.S. sovereign debt from stable to negative, warning that “continued political polarization” in Congress threatens the country’s fiscal strength, The Wall Street Journal and others reported.

Moody’s affirmed the U.S.’s Aaa ratings, saying that that the nation’s “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 U.S. dollar and Treasury bond market in the global financial system.”

Earlier this year, Fitch ratings downgraded the U.S. to AA+, while S&P downgraded its ratings on the U.S. to AA+ in 2011.

Moody’s said that it expects that fiscal deficits will remain very large and debt affordability would be significantly weakened due to higher interest rates, without effective measures to reduce government spending or increase revenues.

Citing recent events, such as the debate over the debt limit and the threat of another government shutdown, the service said that such political polarization is likely to continue, making it increasingly difficult for lawmakers to “reverse widening federal deficits,” The Washington Post reported.

Moody’s expects interest payments relative to revenue to rise to around 26 percent in 2033 from 9.7 percent in 2022. It also said that it that it sees interest payments relative to gross domestic product (GDP) rising to around 4.5 percent in 2033 from 1.9 percent in 2022, the Journal reported.

The U.S. Treasury Department disagreed with the outlook.

“The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset,” Deputy Treasury Secretary Wally Adeyemo said in a statement reported by many news organizations.