Moody’s retained its top triple-A credit rating on U.S. government debt, though it is the last of the three major credit rating agencies to do so. Fitch Ratings lowered its rating to AA from AAA in August, and Standard and Poor’s downgraded the US in 2011. A reduced outlook, however, raises the risk that Moody’s could eventually strip its triple-A rating from the US as well.

A lower rating on US debt could cost taxpayers if it leads borrowers to demand higher interest rates on Treasury bills and notes.

The yield on the 10-year Treasury has risen significantly since July, from about 3.9 per cent to 4.6 per cent Friday, an unusually sharp rise.

Some market analysts have said the August Fitch downgrade may have contributed to that increase, though most point to other factors as bigger drivers, such as the Federal Reserve’s commitment to keeping its benchmark rate at a 22-year high to battle inflation.

“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’s fiscal deficits will remain very large, significantly weakening debt affordability,” the agency said in a statement.

The Biden administration criticized Moody’s decision.

“While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook,” Deputy Treasury Secretary Wally Adeyemo said. “The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”

The federal government’s budget deficit jumped to USD 1.7 trillion in the budget year that ended September 30, up from USD 1.38 trillion the previous year. Analysts have warned that with interest rates heading higher, interest costs on the national debt will eat up a rising share of tax revenue.

Separately, congressional lawmakers left Washington for the weekend without a plan to avoid a potential government shutdown that could occur by November 17. Moody’s cited congressional dysfunction as one reason it lowered its outlook on US debt.

“Recently, multiple events have illustrated the depth of political divisions in the US: Renewed debt limit brinkmanship, the first ouster of a House Speaker in US history, prolonged inability of Congress to select a new House Speaker, and increased threats of another partial government shutdown,” Moody’s said.

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