Two years after it lowered its outlook on the United States to negative, Moody’s Investors Service on Thursday bumped it back up to stable and affirmed the US government’s top Aaa rating, the ratings firm said, citing a sharp decline in the US federal budget deficit for its decision.
“The US budget deficits have been declining and are expected to continue to decline over the next few years,” Moody’s said.
“Furthermore, the growth of the US economy, which, while moderate, is currently progressing at a faster rate compared with several Aaa peers and has demonstrated a degree of resilience to major reductions in the growth of government spending,” it said.
The improved outlook from the ratings agency follows an announcement by the Congressional Budget Office (CBO) that the budget deficit for the 2013 fiscal year is likely to decline from seven percent of gross domestic product (GDP) in the 2012 fiscal year to four percent of GDP this year.
That would be “a greater decline than Moody’s had anticipated” in August 2011 when it assigned a negative outlook, the ratings agency said.
The decreasing budget deficit is being driven by fiscal policies put in place by the US government, including sequestration and tax increases that took effect at the beginning of the year, Moody’s said.
A slowdown in the rate of increase in federal health care spending also contributed to the decline in the deficit which led to the improved outlook, it said, but warned that “without further fiscal consolidation efforts, government deficits are anticipated to increase once again over the longer term,” and the outlook could be downgraded to negative again.