Aurelia Butler

WASHINGTON (Reuters) -U.S. House of Representatives Republicans are due to unveil a stopgap measure on Saturday aimed at averting a government shutdown, the latest in a series of standoffs that contributed to Moody’s (NYSE:MCO) lowering its outlook on the nation’s credit.The move to change its outlook to “negative” from “stable” by the last major credit ratings agency to maintain a top “AAA” rating on the U.S. government came six months after Congress brought the nation to the brink of default on $31.4 trillion in debt, and just a week before federal agencies will run out of money without congressional action.Newly installed House Speaker Mike Johnson, the top Republican in Congress, has spent the past several days discussing options with his slim 221-212 House majority, including how long to extend stopgap funding while lawmakers negotiate spending legislation for the 2024 fiscal year that runs through Sept. 30.”Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” Moody’s said in a statement.The move’s immediate effect was renewed finger-pointing between President Joe Biden’s White House and Republicans, as each sought to blame the other.”Moody’s decision to change the U.S. outlook is yet another consequence of congressional Republican extremism and dysfunction,” White House spokesperson Karine Jean-Pierre said.Johnson cited the outlook change as “the latest example of the failure of President Biden and Democrats’ reckless spending agenda.” In a statement, he vowed to “fight to get our finances in order.” Moody’s announced its decision after the federal government ended the last fiscal year with a $1.7 trillion deficit — its largest outside the depths of the COVID pandemic. That reflects both the toll of high spending and past tax cuts.FRIDAY FUNDING DEADLINEThe House and Democratic-led Senate must agree on a spending vehicle that President Joe Biden can sign into law by Nov. 17, or risk a fourth partial government shutdown in a decade that would close national parks, disrupt pay for as many as 4 million federal workers and disrupt a swath of activities from financial oversight to scientific research.House Republicans hope to vote on Tuesday on a stopgap measure, which could extend discretionary funding for federal agencies into mid-January. Some House Republicans have called for a “clean” continuing resolution, or “CR,” that would keep funding at current levels and contain no partisan policy riders such as immigration restrictions at the U.S.-Mexico border that Democrats view as “poison pills.””Plainer is better. The things you should put on there are things that both sides agree to. Don’t use it as an effort to jam somebody,” Representative Tom Cole told reporters before lawmakers left Washington on Thursday. “That’s my opinion,” Cole said. “But I would be supportive of whatever the speaker puts out.”But Johnson has also been under pressure from Republican hardliners for a CR with spending cuts, conservative policies and a complex structure that lawmakers of both parties say could raise the chances of a partial shutdown by making it harder for the House to reach agreement with the Democratic-led Senate. Representative Chip Roy, a prominent member of the hardline House Freedom Caucus, said he could accept a stopgap measure that also contains aid to Israel in its war with Hamas. “My main thing is: I want spending levels to be down; I want us to separate Israel; and I want us to be able to deal with the border,” the Texas Republican said.Roy said he wanted Congress to handle Israel aid separate from that for Ukraine — while Biden has sought to package the two together, adding, “If (Israel) rides with a CR … fine.”House Republican hardliners have been pushing to cut fiscal 2024 spending below the $1.59 trillion level that Biden and Johnson’s predecessor agreed in the May deal that averted default. But even that is a small slice of the overall federal budget, which also includes mandatory outlays for Social Security and Medicare, and topped $6.1 trillion in fiscal 2023.Johnson, who won the speaker’s gavel less than three weeks ago, could put his own political future at risk by opting for a clean CR that can win enough ready bipartisan support to pass through Congress quickly.His predecessor, Kevin McCarthy, was ousted from the job by eight Republican hardliners early last month, after he moved a bipartisan measure to avert a shutdown on Oct. 1, when fiscal 2024 began. McCarthy opted for the bipartisan route after hardliners blocked a Republican stopgap measure with features intended to appease them. More

Moody’s changed the U.S. credit outlook to negative from stable on Friday, citing larger fiscal deficits and a decline in debt affordability.”Any type of significant policy response that we might be able to see to this declining fiscal strength probably wouldn’t happen until 2025 because of the reality of the political calendar next year,” William Foster, a senior vice president at Moody’s, told Reuters.Moody’s typically “resolves” an outlook, meaning in case of a negative outlook it either brings it back to stable or goes ahead with a rating downgrade, within 18 to 24 months, he said. But the process may take longer and will depend on fiscal policy measures that will be taken.Moody’s lower outlook comes after a bond selloff that has pushed long-term Treasury debt yields to levels not seen since 2007 in recent weeks. An environment of higher interest rates will likely result in higher interest payments and higher deficits, said Foster. “And so, the question from our perspective moving forward is to what extent the government will be able to address that through fiscal policy measures that will reduce deficits moving forward, either through higher revenues, or reducing primary spending,” he said. More

The rating agency said it expects United States’ fiscal deficits will remain very large, significantly weakening debt affordability.Moody’s (NYSE:MCO) affirmed the long-term issuer and senior unsecured ratings at “Aaa”. COMMENTS:MARK SOBEL, FORMER SENIOR TREASURY OFFICIAL”We need to get our act together. “Our debt is completely sustainable for well into the future. But everybody knows that the U.S. debt trajectory for the coming decades under unchanged policies is quite adverse and no credit rating agency is offering us any new insights on our fiscal dynamics.”STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK“The behavior that’s taking place on Capitol Hill in terms of not dealing with the fiscal situation when you’ve got a $1.5 trillion structural deficit is clearly a problem that will be reflected in terms of the market.“I think it was a mistake for them to do it on a Friday afternoon because that means the first market that is going to react to it is Japan. The Japanese are significant holders of U.S. debt and it’s a much less liquid market. Therefore, you could wind up with a bit more of an outside immediate response in the overseas market come Sunday night.”THIERRY WIZMAN, GLOBAL FX & INTEREST RATES STRATEGIST, MACQUARIE, NEW YORK“I certainly don’t think that Moody’s is saying anything at this point that traders in the broader market don’t already know or haven’t already figured out.“Moody’s decided that they needed to converge with the market’s view, which is that the U.S. is from the sovereign risk perspective, is clearly a less safe place to invest in than it was pre-COVID and before this run up in debt.”MICHAEL GREEN, CHIEF INVESTMENT STRATEGIST, SIMPLIFY ASSET MANAGEMENT, NEW YORK, NY    “All that Moody’s doing is they’re acknowledging that the path that we’re on right now is politically dysfunctional, and that if we continue on it, either through much higher level of interest rates or through the political dysfunction, that lowers the probability that we can effectively address financial issues if they emerge.”    “I don’t think that there is a significant consequence. I would hope that the message is interpreted by both Republicans and Democrats as a warning sign that the U.S. needs to start behaving in a more fiscally responsible manner and governing in a more cohesive framework.”JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO“It’s not about our ability to pay, it’s just an indictment of our governance and how our Congress and essentially the legislature manage our finances.”“I think that it really is a governance issue and I think the question is how we can navigate extending this debt ceiling and getting a budget passed.”“I don’t think this is enough necessarily to rattle the cages of bond market vigilantes but I don’t see any light at the end of that governance tunnel.”“The problem is ultimately, the only thing that is going to get Congress together is a crisis.”QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:”The markets have been through this a number of times over the last six, seven months. It’s interesting that it’s on a Friday, so the market has a couple of days to absorb this. But especially coming into the possibility of a government shutdown, it is yet another reminder that the ratings agencies are focused on the ability of the government to craft a deal.”Even at the margin, this is not a positive, but the market will move on from this. Nonetheless, it is a reminder that the clock is ticking and the markets are moving closer and closer to understanding that we could go into another period of drama that could lead ultimately to the government shutting down.”CAROL SCHLEIF, CHIEF INVESTMENT OFFICER, BMO FAMILY OFFICE, MINNEAPOLIS, MN”It’s not entirely surprising given the given the level of debt. Moody’s probably weighed on a combination of things. We’ve had sloppy auctions a couple of different times in the last few weeks. They might just think that coming up again on yet another potential government shutdown, and especially if they continue to push the candle on the road rather than solve the problem, that can have weighed on it too.CHRISTOPHER HODGE, CHIEF ECONOMIST FOR THE U.S., NATIXIS “It is hard to disagree with the rationale, with no reasonable expectation for fiscal consolidation any time soon. Deficits will remain large (even if not expanding) and as interest costs take up a larger share of the budget, the debt burden will continue to grow.  This only adds to the dour mood music with political turmoil, looming potential government shutdown, and the weak 30-year auction  yesterday.  None of the information is new so it is hard to see a huge market implication, and this may in fact harden Republicans’ stance in the ongoing budget negotiations.  So while this could increase the chance of a government shutdown next week, it also raises the odds of a slight pullback in discretionary spending in FY24″KARINE JEAN-PIERRE, WHITE HOUSE PRESS SECRETARY “Moody’s decision to change the U.S. outlook is yet another consequence of Congressional Republican extremism and dysfunction. Moody’s cites a number of recent actions by Congressional Republicans: repeatedly taking us to the brink of a government shutdown, shutting down Congress for three chaotic weeks because they were unable to unify around a leader, and holding the nation’s full faith and credit hostage. Whether it’s those actions or their continued attempts to increase the debt with tax giveaways for the wealthy and big corporations, extreme Congressional Republicans have undermined our economy at every turn.”WALLY ADEYEMO, DEPUTY SECRETARY OF THE TREASURY “While the statement by Moody’s maintains the United States’ Aaa rating, we disagree with the shift to a negative outlook. The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset. The Biden Administration has demonstrated its commitment to fiscal sustainability, including through the more than $1 trillion in deficit reduction included in the June debt limit deal as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion over the next decade.”REPUBLICAN REPRESENTATIVE ANDY HARRIS, ON X SOCIAL MEDIA “Moody’s just downgraded our credit rating outlook to negative because of our out-of-control government spending and deficits. We cannot, in good conscience, continue writing blank checks to our federal government knowing that our children and grandchildren will be responsible for the largest debt in American history.”REPUBLICAN SENATOR JOHN CORNYN, ON X SOCIAL MEDIA“Bidenomics: United States credit-rating outlook was changed to negative from stable by Moody’s Investors Service, which said the downside risks to the country’s fiscal strength have increased.” More