Moody's Downgrades US government ratings due to rising federal debt, interest payments | Today news

Moody’s ratings downgraded the government of the United States of America’s (US) long -term issuer and senior uninsured ratings of AA1 of AAA. The downgrade, which is a one-time fall on Moody’s 21-point rating scale, comes amid concerns about rising federal debt and interest payments, which has increased significantly over the past decade. The rating agency said the move reflects the continued failure of successive US administrations and the congress to agree on measures that can turn the tendency of large and persistent fiscal deficits. Moody’s said: “Successive US administrations and Congress have failed to agree on measures to turn the tendency of major annual fiscal deficits and growing interest costs. We do not believe that substantial reduction of more years in mandatory spending and deficits is due to current fiscal proposals.” It noted that the US federal government spent more, while revenue dropped due to tax cuts. This combination has led to growing deficits and debt levels. Moody’s said it expects the US to continue with major fiscal deficiencies over the next decade, especially as increasing the spending of the rights and revenue growth remains flat. If the 2017 Tax Return and Jobs Act is extended, as Moody’s assumes, it adds an estimated USD 4 trillion to the federal primary deficit (interest payments) over the next ten years. By 2035, mandatory spending, including interest, is expected to make up about 78 percent of total federal spending, of 73 percent in 2024. However, despite the downgrade, Moody has assigned a stable outlook, citing balanced risks at the AA1 level. It recognizes several credit strength that supports the US economy, such as the large size, resilience, high average income and a strong record of innovation. The agency also pointed to the role of the US dollar as the world’s dominant reserve currency, which offers the government of strong financing capabilities, despite its high shortages. Moody’s believes the US will maintain its institutional strengths, including the constitutional separation of powers and an effective, independent monetary policy led by the Federal Reserve. In the future, Moody’s said that a return to fiscal discipline, through increased income or reduced spending, could lead to an upgrade of the rating. On the other hand, a faster -than -expected decline in debt statistics or a sudden loss of confidence in the US dollar can cause another downgrade. However, the agency considers such a scenario unlikely, as there is currently no credible alternative to the US dollar as a global reserve currency.