First Fitch, now Moody's: A second credit ratings agency reduces the outlook for US credit rating

In a highly unusual (but not likely catastrophic) move, a major credit ratings agency warned that the US credit rating is at risk of being downgraded in an announcement released after the close of markets Friday.

New York, November 10, 2023 – Moody’s Investors Service (Moody’s) has today changed the outlook on Government of United States of America’s (US) ratings to negative from stable and affirmed the long-term issuer and senior unsecured ratings at Aaa.

The key driver of the outlook change to negative is Moody’s assessment that the downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths. 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. 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. . . .

This is a highly unusual move for any of the credit ratings agencies (there are three big one, Moody’s, Fitch and S&P). It has happened only a handful of times in US history, all of them since 2011.

Moody’s joins Fitch which issued such a warning in early august of this year, ending the stock market recovery. (Fitch’s warning occurred at the blue line on the YTD S&P chart below)

CNN coverage of the credit warning surmised below:

The United States is one step closer to losing its last perfect credit rating after Moody’s Investors Service changed the outlook of the nation’s debt to negative on Friday after markets closed.

While the move does not automatically mean it will downgrade America’s creditworthiness, it increases the chances.

Even the prospect of a US downgrade could hurt Americans’ investment portfolios, make it even more expensive for them to borrow money, and make it more costly for the government to pay off its debts.

These effects would likely be even more painful if Moody’s does eventually downgrade the US debt. . . .

I guess we can’t deficit spend our way to the promised utopia?

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You know what would be totally crazy?

It would be totally crazy if Washington acted like the temporary one-time upsurge in tax revenue (post COVID) were a permanent thing and then started spending like the money would be there forever.

That would be totally crazy.

I bet if that ever happened, some people would pretend it did not happen and instead start saying “The rich aren’t paying their fair share,” and “corporations aren’t paying their fair share.”

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Too many people in Washington are so addicted to spending. Ukraine is the perfect example. Isn’t it like over 100 billion dollars has already gone there with not even a hesitation or second thought by most members of Congress. When the answer to fix any and all problems is for government to spend money then deficits and growing debt will be here to stay.

You can spend on your necessities, or you can blow your budget on toys and gifts to others.

IMO it’s to pressure congress more than anything else…to pass a budget.

Bidenomics is the real deal

Passing an irresponsible budget won’t fix the foundation a credit rating is built on.

They lowered to threaten to lower credit ratings every single time government shuts down…and they’re threatening it again.

Now having said that…debt government accumulated is a serious threat. IMO that’s not reason this time. It’s a habit they gotten themselves into.