2023-11-10 23:20:00
Hard blow for Joe Biden. A week of new crucial negotiations in Congress to avoid budgetary paralysis (“ shutdown “), the rating agency Moody’s lowered the outlook for the United States’ debt rating from stable to negative. The debt remains rated at AAA, but the negative outlook clearly indicates that a downgrade is possible in the medium term. Moody’s is therefore the only three of the major rating agencies to maintain its highest rating on American sovereign debt. Fitch went from triple A to AA+ last August, joining S&P, which has been at AA+ since 2011.
High interest rates
Moody’s believes that ” in a context of high interest rates and without budgetary measures to reduce government spending or increase revenues (…) “, we can wait each other ” that the deficits of the United States remain very large, weakening the accessibility of loans ».
While the budget deficit of the United States has reached the colossal sum of 1.695 billion dollars. And, because of the increase in interest rates initiated by the American central bank (Fed) to curb inflation, the cost of debt for the United States is considerably increased. This means that 879 billion dollars in interest were paid out, or 162 billion dollars more than in 2022. Especially since the rates are not ready to fall and could even increase, according to Jerome Powell, the president of the Fed.
Rates: the hypothesis of seeing the Fed strike again to curb inflation makes Wall Street tremble
As for the debt itself, its volume now exceeds the country’s domestic product. Moody’s estimates that interest on debt will amount to 4.5% of US GDP in 2033 compared to 1.9% in 2022. The downgrade of the rating outlook by Moody’s comes amid the recent rise in bond yields. adds pressure on repayment deadlines. Moody’s estimates that interest on debt will amount to 4.5% of US GDP in 2033 compared to 1.9% in 2022.
Moreover, ” Political polarization in Congress raises the risk that successive administrations will not be able to reach consensus on a budget plan », Estimates Moody’s.
The US Treasury disputes
Moody’s decision was immediately contested by the US Treasury which expressed its ” disagreement ». « The U.S. economy remains strong and Treasury securities are the world’s largest safe and liquid asset “, declared Deputy Treasury Secretary Wally Adeyemo referring to government bonds.
« The Biden administration has demonstrated its commitment to fiscal sustainability, notably through the deficit reduction of more than $1 trillion included in the June debt ceiling agreement as well as through the budget proposals of President Biden that would reduce the deficit by nearly $2.5 trillion over the next decade “, he said.
White House spokesperson Karine Jean-Pierre saw in this reduction “ a new consequence of extremism and Republican dysfunction in Congress ».
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