The US government is in the middle of discussing a generational tax cut and Moody's just voted.
The ratings agency downgraded the full faith and credit of the USA to Aa1 from Aaa. That means that all three ratings agencies have now removed the US top rating.
The drop comes a year after Moody's lowered its outlook on the US. That was a sign this could be coming but the usual 18-24 month guideline was spend up so that it would be lobbed at a high stakes time. Moody's says the new rating is stable but also highlights the obvious problem.
"Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's said.
They highlighted the upcoming budget bill to note that it doesn't see any meaningful multi-year reductions in mandatory spending under the current proposals. With that, they say the USA's fiscal performance is likely to deteriorate relative to other highly-rated sovereigns.
“While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s wrote.
In terms of one of those metrics, they see US dept-to-GDP rising to about 134% of GDP in 2035 compared to 98% last year.
There was some very late moves in the market on this and I'd expect it's negative for the dollar on Monday and positive for gold.
This article was written by Adam Button at www.forexlive.com. Read More Details
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