WASHINGTON (AP) – Credit rating agency Moody’s Investors Service on Friday downgraded the outlook on the U.S. government debt to “negative” from “stable,” citing the cost of rising interest rates and political polarization in Congress.
Moody’s maintains the highest AAA credit rating for US government debt, although it is the last of the three major credit rating agencies to do so. Fitch Ratings downgraded its rating from AAA to AA+ in August, and Standard & Poor’s downgraded the United States in 2011. However, the downgrade of the outlook increases the risk that Moody’s may eventually remove its AAA rating in United States.
A lower US debt rating could cost taxpayers if it leads creditors to demand higher interest rates on Treasury notes. The 10-year Treasury yield has risen sharply since July, from around 3.9% to 4.6% on Friday, an unusually sharp increase.
Some market analysts said Fitch’s downgrade in August may have contributed to that increase, though most pointed to other factors as more important drivers, such as the Federal Reserve’s commitment Reserve to maintain its benchmark rate at a 22-year high.
“In the context of higher interest rates, without effective fiscal policy measures to reduce public spending or increase revenues, Moody’s expects US fiscal deficits to remain large , further weakening debt affordability,” the agency said in a statement.
The government criticized Moody’s decision.
“While Moody’s statement maintains the AAA rating of the United States, we do not agree to change the negative outlook,” said Treasury Undersecretary Wally Adeyemo. “The US economy remains strong and Treasury securities are the world’s leading safe and liquid asset.”