(Bloomberg) -- The recent deal by US lawmakers to suspend the nation’s statutory debt-limit will have a “low” impact on the country’s credit profile, according to Moody’s Investors Service.
The outcome is “consistent” with a stable outlook on the Aaa rating that Moody’s has for the US sovereign, William Foster, a senior credit officer at Moody’s, said in an emailed report along with several colleagues. It also conforms with the credit assessor’s baseline expectation from March that an agreement would ultimately be implemented before there was a risk of default, “despite a polarized and contentious political environment.”
President Joe Biden last week signed into law an agreement to avert potential default by the US government, an outcome that could have had calamitous effects on the global economy and markets. The specter of default had hung over the US government for months amid bitter division between Republicans and Democrats.
The legislative deal that includes the suspension of the debt cap “does not change our assessment of the US sovereign credit profile given the act’s limited impact on the federal government’s fiscal position, institutions and governance strength, and the broader economy” Moody’s wrote.
However, the analysts did note that “over the medium term, widening fiscal deficits and declining debt affordability will increasingly weigh on the country’s fiscal strength and be the main credit challenge to the sovereign’s Aaa rating and stable outlook.”
The overall macroeconomic effects of the bill to suspend the ceiling and reduce spending would be limited, but there would be implications for some sectors, Moody’s said.
Meanwhile, the ratings provider said that its assessment of US institutions and governance strength already reflects risks from political polarization, including weaker fiscal policymaking than peers.
(Updates throughout with extra detail from Moody’s.)
©2023 Bloomberg L.P.