Moody’s Investors Service, one of the world’s leading credit rating agencies, recently downgraded their outlook on United States credit from “stable” to “negative.” This significant shift in the agency’s outlook was triggered by mounting concern over the lack of policy progress in Washington and a fear that a prolonged period of “political dysfunction” could hinder US economic growth and endanger its strong credit rating.
Though Moody’s has a longstanding record of being conservative in its assessments of the US economy, this downgrade signals a growing uneasiness among investors and rattling the public’s confidence in the country’s fiscal health. This decision comes on the heels of a series of political gridlock and legislative stalling, which has prolonged the US debt ceiling crisis and threatened the passing of much-needed reforms.
Moody’s chief economist, Mark Zandi, points out that political divisions appear to have led the US toward an ominous stalemate, leaving economic growth stuck at less than half the pace of the long-run average. Zandi warns, “This suggests that an otherwise benign economic cycle won’t further fortify the US’s strong credit rating, while the odds of additional policy mismanagement grow higher.”
The brunt of the negative outlook rests primarily on the political uncertainty of the upcoming election season and potential quarrels over economic policy. Noting Moody’s decision, Prahlad Sharma, senior analyst for the National Treasury, points out that the rift between the two major parties has only widened in recent months. He says, “For now, neither side is willing to concede an inch on their respective policies, and this could have an adverse effect both on the nation’s current budget and its long-term fiscal plan.”
Moody’s recent decision to downgrade the credit outlook for the US comes as a stern reminder of the less-than-ideal situation the country finds itself in. While Washington inhabitants continue to quarrel over their differences, a growing number of economic experts are calling for a resolution on the horizon, one that will bring a semblance of balance to the US government and restore the public’s faith in their stewardship of the economy.