At a news conference held after the APEC Finance Ministers’ Meeting in San Francisco, she expressed her disagreement with the choice made. “Treasury securities continue to be the most secure and liquid asset in the world, and the American economy is fundamentally sound.”
Since March 2022, the U.S. Federal Reserve has raised interest rates significantly. Although higher rates have the potential to reduce inflation, Moody’s most recent forecast revision raises questions about how they may affect the nation’s fiscal imbalances.
“Moody’s expects that the US’s fiscal deficits will remain very large, significantly weakening debt affordability in the context of higher interest rates, barring effective fiscal policy measures to reduce government spending or increase revenues,” the ratings firm stated.
Additionally, it issued a warning that the likelihood that Congress would be unable to come to an agreement on a budgetary plan to “slow the decline in debt affordability” may be increased by “continuing political polarization.”
In fiscal year 2023, the national budget deficit increased to $1.7 trillion from $1.38 trillion in 2022.
As opposed to Moody’s analysis, Yellen highlighted a number of positive characteristics of the American economy.
Yellen noted that the U.S. economy has recovered from a severe recession in a record quick time during the last five years.
“Our economy grew by nearly 5% in the third quarter, our unemployment rate is near historic lows, and inflation has significantly decreased,” she stated.
The most recent jobs data from the Labour Department indicates that in October 2023, nonfarm payrolls rose by 15,000. For the month, the unemployment rate increased from 3.8% to 3.9%. In the past, the average long-term unemployment rate in the United States has generally remained between 5% and 6%.
In terms of inflation, October witnessed a 3.2% yearly increase in the U.S. consumer price index. While the number is still higher than the Federal Reserve’s long-term inflation objective of 2%, it has decreased significantly from its peak.
Yellen’s opinions on GDP growth are also important.
The Commerce Department said last month that the real GDP of the United States grew at an annual rate of 4.9% during the third quarter. This figure was the highest gain since Q4 of 2021 and also surpassed economists’ predictions.
Nevertheless, Yellen stated, “It is true that higher interest rates, if they last, do create a challenge, an additional challenge to debt sustainability,” acknowledging the possible challenges brought on by extended high interest rates.
As to the ratings agency, “Moody’s view that the US’s formidable credit strengths continue to preserve the sovereign’s credit profile is reflected in the affirmation of the Aaa ratings.”
It should be noted that Moody’s is the only one of the three major credit rating agencies to continue holding the nation’s top Aaa rating.
The United States was downgraded by Standard & Poor’s from AAA to AA+ in 2011.
More recently, in August 2023, the nation was downgraded from AAA to AA+ by Fitch Ratings, which followed suit.