Moody’s Investor Service changed its ratings outlook for the U.S. from stable to negative on Friday, as Congress faces down yet another deadline to fund the government and prevent a shutdown next week.
While the country maintained its “AAA” rating, the agency warned that the risks to America’s fiscal strength have increased in the face of higher interest rates and rising debt costs.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability,” the agency said in a statement.
“Continued political polarization within US 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,” it added.
Moody’s is currently the last major ratings agency to maintain the U.S. at its highest possible rating for creditworthiness. Fitch Ratings downgraded the U.S. from “AAA” to “AA+” in August, in the wake of the standoff between President Biden and House Republicans over the debit ceiling.
S&P Global, the third major ratings agency, similarly downgraded the U.S. to “AA+” in 2011, following another debt ceiling fight.
The warning shot from Moody’s comes one week out from Congress’ latest deadline to avert a government shutdown. Lawmakers narrowly avoided a shutdown at the end of September, after former Speaker Kevin McCarthy (R-Calif.) reached a deal with House Democrats to pass a stopgap funding measure.
The deal prompted McCarthy’s ouster from leadership and a drawn-out process to select a new Speaker. After three weeks in limbo, Republicans ultimately came together to back Rep. Mike Johnson (R-La.) for Speaker.