Moody's, the ratings firm, shook the financial world on Friday as it changed the outlook on the credit rating of the United States from “stable” to "negative." This move, while not a downgrade to America's credit rating, is seen as another black mark for the economy and highlights the long-term concerns surrounding the nation's worsening fiscal position and political polarization.

Moody's decision comes in the wake of Fitch's downgrade of the U.S. long-term rating to AA+ from its top mark of AAA in August. The mounting debt burden, rising interest rates, and a Congress deeply divided along party lines have created a threat for America's economy. The inability of lawmakers to agree on ways to reduce the budget deficit has raised concerns about the future of the nation's financial stability.

For President Biden, this development could pose a political problem. Republicans have been critical of his handling of the economy, particularly America's budget deficit, and have been pushing for severe spending cuts. In contrast, Biden has proposed reducing future deficits by expanding the economy and implementing tax hikes for high earners and corporations.

The announcement from Moody's raises concerns about the country's fiscal predicament. The firm suggested that without effective fiscal policy measures to reduce government spending or increase revenues, the U.S.'s fiscal deficits will remain large, significantly weakening debt affordability. Moreover, the continued political polarization within Congress raises the risk that successive governments will fail to reach a consensus on a fiscal plan to address the decline in debt affordability.

Moody's decision not to downgrade the rating was based on the United States' "formidable credit strengths." The firm acknowledged the resilience of the economy, the strength of America's economic institutions, and the role of the dollar as the world's reserve currency. However, it warned that the lack of an immediate path to solve the fiscal predicament could have severe consequences.

The timing of the announcement is noteworthy, as Treasury Secretary Janet L. Yellen had just concluded meetings with her Chinese counterpart, Vice Premier He Lifeng. Yellen stated that she had explained the Biden administration's deficit-reduction efforts to the Chinese officials, considering China's significant role as one of the biggest U.S. creditors.

In response to Moody's outlook change, Treasury and White House officials expressed their disagreement and blamed congressional Republicans for creating dysfunction. Karine Jean-Pierre, the White House press secretary, called it a consequence of "congressional Republican extremism and dysfunction." Deputy Treasury Secretary Wally Adeyemo defended President Biden's stewardship of the economy, highlighting the strength of the American economy and the dominance of Treasury securities as the world's safest and most liquid asset.

While the United States' credit rating remains untouched for now, Moody's warning serves as a wake-up call for policymakers. The federal government faces the risk of a shutdown next week if Congress fails to agree on a spending plan. As the nation grapples with a mounting debt burden and political polarization, finding a consensus on fiscal measures becomes increasingly urgent to ensure long-term financial stability.