The US 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.
While the move does not automatically mean it will downgrade the country’s creditworthiness, it increases the chances, CNN reported.
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, CNN reported.
These effects would likely be even more painful if Moody’s does eventually downgrade the US debt.
The nation’s diminished fiscal strength, undone by extreme partisanship in Washington, was a key driver of the action, according to a statement from Moody’s, CNN reported.
”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 statement said.
US government officials pushed back on the move, citing the liquidity of US Treasuries, among other factors.
“We disagree with the shift to a negative outlook,” Deputy Secretary of the Treasury Wally Adeyemo said in a statement.
“The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
Moody’s is the only one of the three major credit rating agencies to assign the United States an outstanding rating of AAA, which it has maintained since 1917, CNN reported.
Standard and Poor’s downgraded the US for the first time in 2011, following the debt ceiling standoff then.
In August, Fitch Ratings knocked America’s credit rating down after the most recent debt ceiling debate, CNN reported.