Yellen "tough talk": Disagrees with Moody's downgrade of US rating outlook

Among the three major rating agencies, Moody's, the last one to maintain the AAA sovereign credit rating for the United States, has recently downgraded the outlook for the US rating to "negative" due to the recent surge in government debt issuance and extreme polarization between the two parties.

However, US Treasury Secretary Janet Yellen disagrees with Moody's decision and expresses full confidence in US bonds and the US economy.

During a press conference held in San Francisco on Monday local time, Yellen stated:

"The fundamentals of the US economy are strong, and US Treasury bonds remain the world's most important safe and liquid assets."

She added that she "disagrees with Moody's decision."

Despite the ongoing interest rate hikes by the Federal Reserve, the US economy continues to demonstrate strong resilience. However, the growing deficit indicates long-term fiscal risks. In the fiscal year ending in September, the US fiscal deficit has doubled.

In August of this year, Fitch downgraded the US sovereign credit rating amid the escalating US debt ceiling crisis. Since then, Moody's is the only one among the three major rating agencies that maintains the highest rating for the United States (S&P downgraded the US rating during the debt ceiling crisis in 2011).

However, although the US Congress passed a temporary funding bill at the end of September, avoiding a government shutdown at the last minute, the partisan divide within Congress has not eased in the slightest.

By this Friday, the temporary funding bill will expire, and the debt ceiling crisis will resurface. The Republican and Democratic parties have serious disagreements on issues such as international aid, border security funding, and fiscal policy direction, with no clear compromise in sight. The US government is once again facing a shutdown crisis.

The media has pointed out that this highlights the increasingly dire situation of the partisan divide in the US Congress. Since the temporary resolution of the government shutdown crisis less than two months ago, there has been almost no progress in the budget deadlock in Congress.

In a previous statement, Moody's stated that the downside risks to the US fiscal strength have increased, and may no longer be fully offset by its unique credit advantages. Against the backdrop of higher interest rates, Moody's expects the US fiscal deficit to remain very large and significantly weaken debt sustainability if there are no effective fiscal policy measures to reduce government spending or increase revenue. The ongoing political polarization within the US Congress increases the risk of further exacerbating the debt problem.

Although Yellen does not agree with Moody's decision, she also acknowledges that a government shutdown would have a significant impact on the economy:

"When the US economy is performing well and moving in the right direction, a shutdown would create unnecessary obstacles for the economy."