Moody’s Investors Service issued a negative outlook on the future of the American economy this week, signaling that a recession could be in the country’s not-too-distant future. The investment services company’s downgrade of the economy from ‘stable’ to ‘negative’ reflects increasing concerns about inflation and the financial condition of the average American.
The agency wrote that amid “higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the country’s “fiscal deficits will remain very large, significantly weakening debt affordability.”
The institution also cited concern that political infighting in Washington could affect the country’s ability to “reach consensus on a fiscal plan to slow the decline in debt affordability.”
Moody’s wrote that the country may have “positive growth surprises over the medium term,” but that this would only “slow the deterioration” of the country’s longer-term debt issues.
Washington disagreed quickly with Moody’s outlook. Treasury Department Deputy Secretary Wally Adeyemo said that the “American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
Another major financial investment service, Fitch, cut the United States’ default rating from AAA to AA+ in August, citing similar concerns as Moody’s. Fitch also cited political issues as a factor in its decision.
— Mohamed A. El-Erian (@elerianm) November 10, 2023
The decision was made ahead of the likely Nov. 17 deadline to fund the federal government.
House Speaker Mike Johnson (R-LA) has said that his party would release a funding plan shortly. The House is planning a Tuesday vote on future government expenditures.
It is not immediately clear whether any proposed spending plan would be able to make it through both houses of Congress.
White House press secretary Karine Jean-Pierre blamed the current Moody’s status as “yet another consequence of Congressional Republican extremism and dysfunction.”
The negative economic news came amid higher concern over persistent inflation and high bond yields. Despite a number of interest rate increases, the Federal Reserve recently announced that prices were increasing more than expected.
The negative rating and prospect of further interest rate hikes may also increase the chance of a recession.