WASHINGTON: Moody’s cut its outlook on the US debt from stable to negative on Friday, a week ahead of key budget negotiations in Congress.

The agency has maintained its Aaa rating on US sovereign debt for now.

“In a context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects US fiscal deficits to remain very large, significantly weakening debt affordability,” the agency said.

The US Department of the Treasury immediately expressed disagreement with Moody’s decision.

“The U.S. economy remains strong, and Treasury securities are the most important safe and liquid asset in the world,” Deputy Treasury Secretary Wally Adeyemo said in a statement.

“The Biden administration has demonstrated its commitment to fiscal sustainability, including the more than $1 trillion in deficit reduction included in the June debt limit deal, as well as President Biden’s budget proposals that would reduce the deficit by nearly $2.5 trillion in the next decade. “

The U.S. budget deficit announced last month for fiscal year 2023, which ends Sept. 30, rose to $1.7 trillion.

Interest rate hikes by the U.S. central bank to curb inflation have sent the cost of debt to the U.S. skyrocketing, with Washington paying $162 billion more in interest in the last fiscal year compared to 2022.

Moody’s is the only major agency to keep its rating on US sovereign debt at its highest level – underscoring the potential economic danger for the United States if it fails to reach a deal on government funding within a week.

Neither the Democratic-controlled Senate nor the Republican-led House of Representatives have passed legislation to extend government funding, which expires at midnight next Friday on Saturday.

Without a deal by Nov. 17, the world’s largest economy would enter a so-called government shutdown.