Moody’s Investors Service cut the US’s outlook to negative on Friday.
Moody’s lowered its ratings outlook on the US government citing high interest rates, government spending and deficits.
Moody’s Investors Service lowered its ratings outlook on the United States’ government to negative from stable, pointing to rising risks to the nation’s fiscal strength.
The ratings agency has affirmed the long-term issuer and senior unsecured ratings of the U.S. at Aaa.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
Earlier this year Moody’s cut its outlook for the entire US banking sector to negative and put six banks on ‘downgrade’ watch.
The credit rating service’s move to downgrade the entire banking sector from ‘stable’ to ‘negative’ will impact borrowing costs.
“Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital,” Moody’s said in its report in March.
The Federal Reserve raised interest rates 11 times for a total of 550 basis points since last year – 7 times in 2022 and 4 times in 2023 – in an effort to hedge inflation.
The sudden and dramatic rate hikes crushed the bankers invested in low-yielding mortgage-backed securities.
Silicon Valley Bank was in FDIC receivership earlier this year after investors withdrew more than $40 billion in a run on the bank.
Moody’s put First Republic Bank (FRC), Zions (ZION), Western Alliance (WAL), Comerica (CMA), UMB Financial (UMBF) and Intrust Financial on ‘downgrade’ watch.
According to CNBC, the credit rating firm cited “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”
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