A reduced debt rating raises the potential for increased borrowing costs for the federal government.Thank you for reading this post, don't forget to subscribe!
The advisory arises as the government hovers on the edge of another shutdown in the upcoming week and comes after Fitch ratings service previously reduced the US debt rating a couple of months ago. More than a decade ago, Standard & Poor’s took a similar action after a last-minute standoff over raising the debt ceiling.
Deputy Treasury Secretary Wally Adeyemo condemned the decision, stating that the administration “has demonstrated its dedication to fiscal stability, including the over $1 trillion in deficit cuts incorporated in the June debt ceiling deal, as well as President Biden’s “Also includes budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade.”
The GOP was directly accused by the White House for the change in approach by Moody’s.
“Moody’s decision to change the US approach is yet another result of congressional Republican overreach and dysfunction,” press secretary Karine Jean-Pierre said in a statement.
Representative Andy Harris, a Maryland Republican and member of the House Appropriations Committee, attributed the situation to “out-of-control government spending and deficits.”
“We cannot in good conscience continue writing blank checks to our federal government, knowing that our children and grandchildren will be responsible for the largest debt in American history,” Harris tweeted.
The US currently holds its “AA” rating, the highest credit rating possible for a borrower under the Moody’s scale. The rating company noted remarkably strong economic growth in the US, which could alleviate the increase in borrowing costs.
“The US’s institutional and governance strength is also very high, particularly supported by monetary and macroeconomic policy effectiveness,” it adds.
Correction: A previous version of this article misstated the action taken by Moody’s. It placed US debt on negative outlook, indicating a potential decline in the medium term rather than in the next few months.