Credit rating agency Moody's maintained its AAA rating on US government debt but downgraded its outlook from "stable" to "negative," according to AP.
Moody's logo at the company headquarters in New York
"In the face of higher interest rates, absent effective fiscal policy measures to reduce spending or increase government revenues, Moody's expects the US fiscal deficit to remain very large, significantly undermining debt service capacity," Moody's said in a report.
Increased federal spending and polarized politics have raised growing concerns among investors, contributing to a sell-off that sent U.S. government bond prices to 16-year lows, according to Reuters.
Moody's said the ongoing polarization in the US Congress increases the risk that lawmakers will not be able to agree on a fiscal plan to slow the decline in debt service. Moody's senior vice president William Foster predicted that no major policy response to help change this situation will be possible until 2025 because of the US political situation next year, referring to the upcoming election season.
Moody's is the last of the big three U.S. credit rating agencies to maintain its AAA rating. Fitch Ratings downgraded it to AA+ in August, while Standard & Poor's has done so since 2011.
Immediately after Moody's announcement, White House spokeswoman Karine Jean-Pierre said the company's forecast change was a result of Republican extremism and congressional dysfunction.
"While Moody's announced that it would maintain the US AAA rating, we disagree with the change to a negative outlook. The US economy remains strong and Treasury bonds are the world's safest and most liquid assets," said Undersecretary of Finance Wally Adeyemo.
Moody's outlook change is expected to put pressure on Republicans to move ahead with budget bills to avert a partial government shutdown before November 17. Republicans, who control the House of Representatives, are expected to unveil a stopgap spending measure on November 11 to avoid a government shutdown.
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