- US Treasury Secretary Janet Yellen said she disagreed with Moody’s downgrade of its US outlook.
- The economy is strong and US Treasuries are the world’s safest, most liquid asset, she said.
- The ratings agency rattled markets after slashing its US credit outlook to “negative.”
Janet Yellen disagrees with Moody’s downgraded outlook for the US – the economy is too strong, and the US Treasurys remain the world’s safest asset, she argued in defending the US debt market from the rating agency’s assessment.
Moody’s downgraded its US credit outlook from “stable” to “negative” last Friday. Though the agency maintained its current AAA rating for US debt, the downbeat outlook sparked volatility in stocks as it added to investors’ worries about the country’s soaring debt load and widening deficit.
But those fears are misguided, Yellen suggested at the Asia-Pacific Economic Cooperation on Monday.
“This is a decision I disagree with,” Yellen said. “The American economy is fundamentally strong, and Treasury securities remain the world’s preeminent safe and liquid asset.”
The economy has remained resilient over the past year, despite the Federal Reserve raising rates and tightening financial conditions to lower inflation. Real GDP surged nearly 5% over the third quarter. Meanwhile, inflation has cooled from its 41-year-high last summer, while the unemployment rate is close to historic lows, clocking in at 3.9% in October.
Volatility in the bond market has also eased in recent weeks after Treasury yields hit a 16-year-high. The yield on the 10-year US Treasury slipped another 13 basis points to 4.494% early Tuesday after the latest Consumer Price Index report showed inflation eased more than expected on an annual basis in October.
Yellen acknowledged, though, that higher interest rates posed an “additional challenge” regarding the stability of US debt.
“The President and I are completely committed to a credible and sustainable fiscal path,” she added.
Investors have been increasingly worried about the trajectory of the national debt, with the total US debt balance hitting $33 trillion for the first this year. Higher interest rates have pushed up annual interest payments to $1 trillion as of the third quarter, according to an analysis from Bloomberg Intelligence.
Congress, meanwhile, has yet to agree on the federal budget, with policymakers still sparring over potential spending cuts. The government could shut down by the end of this week if lawmakers don’t finalize a budget in time, an event that would bring an “unnecessary economic headwind,” Yellen said.
