Moody’s Investors Service has announced that it has upgraded U.S. government debt from “negative” to “stable” while affirming the country’s AAA rating. Thanks to a drop in the federal deficit, the U.S. government is set to report its lowest annual deficit in five years. So far during the budget year, the deficit has totaled $509.8 billion; $400 billion lower than the deficit one year ago.
The CBO has predicted an annual deficit of $670 billion at the end of the budget year (September 30), nearly $340 billion less than last year’s $1.09 trillion deficit, though it would still be the fifth largest in history. Next year, the CBO expects the deficit to fall to 3.4 percent of GDP, then 2.1 percent in 2015. U.S. government debt had been classified by Moody’s as “negative” two years ago though it never downgraded the country’s top credit rating.
The higher rating should equate to lower borrowing rates for governments as their bonds become less risky. And federal tax increases along with spending cuts and an improving economy have shrunk the budget to recent lows. Moody’s still cautioned that longer term deficits still needed to be adequately controlled as Baby Boomers retire and begin to collect Social Security and Medicare. Otherwise, the rating could again be put under pressure and face another downgrade.