The last AAA rating is not guaranteed? Moody's: Regardless of who is elected president, the US economy will worsen.

Credit rating agency Moody's said that the fiscal situation in the United States is expected to further deteriorate as political polarization makes it difficult for any new presidential administration to negotiate measures to reduce the national debt burden. The agency stated in a report released on Tuesday that regardless of whether it is Democratic candidate Kamala Harris or Republican candidate Donald Trump who wins the presidential election on November 5, the sovereign fiscal situation in the United States could worsen. The report stated, "The incoming leaders of the U.S. government will face deteriorating fiscal prospects, as the declining debt burden capacity will gradually weaken the country's fiscal strength. Without policies in place to curb these trends and help limit the fiscal deficit, the deterioration of fiscal strength will increasingly put pressure on the U.S. sovereign credit condition." Moody's downgraded the outlook on the U.S.' AAA credit rating from "stable" to "negative" in November 2023. A few months ago, another rating agency, Fitch, downgraded the U.S.' sovereign credit rating due to the political brinkmanship surrounding raising the U.S. debt ceiling. Moody's remains the last of the three major rating agencies to maintain the highest rating for the U.S. government. Fitch downgraded its rating from AAA to AA+ in August 2023, joining Standard & Poor's in maintaining a AA+ rating since 2011. Moody's estimated that the U.S. government's fiscal deficit will account for around 7% of GDP annually in the next five years, and by 2034, the deficit ratio could rise to 9%, at which point the debt burden will increase from 97% of GDP last year to 130%. The agency stated, "If meaningful policy measures are not taken to reduce the fiscal deficit, control new borrowing to cover the deficit, and slow down the growth of interest expenditure, the fiscal strength of the U.S. will significantly weaken. If policy actions are not taken to correct this direction, these debt dynamics will become increasingly unsustainable and inconsistent with the Aaa rating." Fitch stated last month that regardless of who wins the November election, the U.S. fiscal situation may remain largely unchanged. Moody's stated that a decisive factor influencing the fiscal outlook of the U.S. sovereign is not only the outcome of the presidential election, but also the composition of the Congress decided in the November elections, as the balance of power in the legislature may restrict the ability of the new administration to ensure the passage of legislation. The U.S. Congress currently faces division, with Republicans controlling the House of Representatives and Democrats controlling the Senate. Moody's said, "We expect the U.S. government to continue to be divided, hindering the new government from enacting comprehensive fiscal reforms. Therefore, the fiscal policy proposals of both candidates may require intense negotiation and compromise between the two parties. On the other hand, victory by either party may lead to significant policy changes, which could have a broader impact on economic growth prospects and the credit conditions of both public and private sector entities." The report stated, "Credit risks exist in the potential for sudden and disruptive changes in areas such as taxation, trade and investment, immigration, and climate policy." Last month, Trump suggested that the U.S. president should have a say in the decisions of the Federal Reserve, indicating that he may break from the traditional policy of Fed independence. Moody's stated that political influence on monetary policy decisions would be "negative" and could impact investor confidence in the U.S. financial markets. The report stated that more broadly, the weakening of institutional strength could undermine confidence, impair the implementation of countercyclical policies, and have negative impacts on the operating environment for economic growth, financial markets, and bond issuers.