U.S. fiscal profile expected to deteriorate under incoming administration, says Moody’s

U.S. fiscal health is projected to decline further as political divisions hinder any incoming presidential administration from negotiating necessary measures to alleviate the national debt burden, according to global ratings agency Moody’s.

Weakened sovereign outlook

The sovereign fiscal outlook for the U.S. is expected to weaken regardless of which candidate wins the November 5 presidential election—Democrat Kamala Harris or Republican Donald Trump, the agency noted in a recent report.

Deteriorating fiscal landscape

The report indicated that the new administration will confront a worsening fiscal landscape, as diminishing debt affordability will gradually undermine U.S. fiscal strength. It emphasized that without policy initiatives to address these trends and mitigate fiscal deficits, declining fiscal strength will increasingly impact the U.S. sovereign credit profile.

Credit rating downgrade

In November 2023, Moody’s downgraded its outlook on the U.S. credit rating from “stable” to “negative.”

This change followed a downgrade by another agency, Fitch, which revised the U.S. sovereign credit rating amid political stalemate over raising the debt ceiling. Moody’s remains the last of the three major rating agencies to hold a top rating for the U.S. government. Fitch lowered its rating from triple-A to AA+ in August 2023, joining S&P, which has maintained an AA+ rating since 2011.

Projected fiscal deficits

Moody’s anticipates that the U.S. government will face fiscal deficits of around 7 percent of gross domestic product annually over the next five years, potentially rising to 9 percent by 2034. This would increase the debt burden to 130 percent of GDP, up from 97 percent last year.

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Need for policy action

The agency emphasized that the decline in U.S. fiscal strength will be significant without substantial policy measures to reduce fiscal deficits, limit new borrowing to address those deficits, and slow the growth of interest expenses that increasingly consume government revenues.

Future fiscal stability

Moody’s noted that these debt dynamics will become increasingly unsustainable and inconsistent with an Aaa rating if no corrective actions are taken. 

Fitch indicated last month that the U.S. fiscal profile is likely to remain largely stable, regardless of the outcome of the election in November.

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