Moody's is sounding the alarm on the U.S. fiscal picture again. The agency already downgraded America's top credit rating, along with Fitch, following a debt ceiling battle on Capitol Hill in 2023, while S&P Global Ratings was the first to strip the U.S. government of its AAA score in 2011. The latest from Moody's comes ahead of new estimates by the Congressional Budget Office, which will detail the government’s long-term economic and budget outlook on Thursday.

Quote: "The evolving U.S. government policy agenda on trade, immigration, taxes, federal spending and regulations could reshape parts of the U.S. and global economy with significant long-term consequences," Moody's declared. "Fiscal strength is on course for a continued multiyear decline" and there are "increasing risks that the deterioration in U.S. fiscal strength may no longer be fully offset by its extraordinary economic strength... In fact, fiscal weakening will likely persist even in very favorable economic and financial scenarios."

Credit ratings play a critical role in debt affordability and seek to determine the ability and willingness of a corporation or sovereign government to service their bonds on time. However, there is plenty of criticism of the agencies over past missteps, like their trustworthy ratings for instruments responsible for the financial crisis. There is also a general lack of transparency or oversight surrounding their actual methodologies and quality credit assessments, while the big rating agencies are paid by the sellers of the securities they rate. Companies and sovereigns don't have much of a choice when it comes to getting their bonds priced and raising debt, with the big rating firms' status enshrined in current regulatory regimes.

Outlook: Moody's has assigned a negative outlook to America's top-notch AAA credit rating since November 2023, which was a controversial decision on Wall Street and came after a similar move by Fitch. "The U.S. is the most prosperous and secure nation on the planet, and has the best economy the world has ever seen," JPMorgan CEO Jamie Dimon said at the time. "There are a bunch of countries that are rated higher than us, like AAA, but they live under the American enterprise military system. It's kind of ridiculous. The markets decide. It's not the ratings agencies who make these big decisions."