Moody’s affirms United States’ Aaa rating; maintains stable outlook

Moody’s Investors Service (“Moody’s”) has today affirmed the Government of United States of America’s (US) Aaa long-term issuer and senior unsecured ratings. The outlook remains stable.

The rating affirmation is driven by Moody’s view that the US is emerging from the pandemic shock with its credit strengths intact, underpinned by exceptional economic strength, high institutional and governance strength, and the unique and central roles of the US dollar and US Treasury bond market in the global financial system, which among other benefits provide extraordinary funding capacity. The US’ strong policy response to the pandemic supported a very swift and early recovery that avoided economic scarring and demonstrated the government’s capacity to manage shocks. Moody’s expects the US economy and the sovereign’s credit profile to remain resilient to shocks, including the current challenges to the global economy from high and persistent inflation, tightening financial conditions, and the Russian invasion of Ukraine. Risks to the US economy have materially increased and could lead to a sharper than expected slowdown, or potentially a recession, driven by increasing monetary policy tightening over the next few quarters. If materialized, those risks would exert further pressure on the US’ relatively weak fiscal position. However, in Moody’s view, US institutions, including the Federal Reserve, will effectively manage these challenges and the US economy will demonstrate its resilience.

The stable outlook reflects Moody’s view that the diversity, dynamism, and competitiveness of the US economy, along with the US dollar’s status as the preeminent international reserve currency and very large size and depth of the US Treasury market, will continue to offset rising fiscal pressures and periods of economic slowdown. Following a sharp widening of fiscal deficits and a rise in the debt burden during the pandemic, deficit and debt ratios will improve in 2022 and 2023. However, the US’ fiscal strength is expected to deteriorate at an increasing rate over time as higher ageing-related entitlement spending and interest payments drive persistent fiscal deficits, absent material revenue or entitlement reforms. Diminishing confidence that US policymakers will take effective action in the coming years to reduce federal government budget deficits and the ongoing rise of the debt burden would signal erosion of both fiscal and institutional strength, which would weigh on the sovereign’s credit profile.

The US’ long-term local- and foreign-currency country ceilings remain unchanged at Aaa. The Aaa local-currency ceiling reflects a small government footprint in the economy, predictable and effective institutions, very low external imbalances and low political risks, all of which reduce the risks posed to non-government issuers by government actions or shocks that would commonly affect the government and the private sector. The foreign-currency ceiling at Aaa reflects the country’s very strong policy effectiveness and open capital account which reduce transfer and convertibility risks to minimal levels. Its short-term foreign-currency country ceilings remain unchanged at Prime-1.
Source: Moody’s