President Trump said new import tariff rates are coming soon
During his trip to the Gulf, President Trump said his administration would be sending letters to countries informing them of new tariff rates.
Moody’s Ratings has downgraded the nation’s credit rating one notch from Aaa to Aa1, leaving the U.S. government without a top grade among any of the major rating agencies.
Moody’s cited rising debt and interest payment ratios that are “significantly higher than similarly rated sovereigns.”
“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in a Friday news release. “The U.S.’s fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”
For U.S. consumers, lower ratings could lead to higher borrowing costs.
Why did Moody’s downgrade the U.S.?
The switch comes after Fitch Ratings downgraded the nation to AA+ from AAA in 2023. Standard & Poor’s downgraded the nation’s credit rating in 2011.
Moody’s cites federal debt that has risen “sharply” due to continuous fiscal deficits, driven by increased federal spending and reduced government revenues through tax cuts.
The agency notes the latest tax bill draft from the GOP would add about $4 trillion to the federal primary deficit over the next decade, and said it doesn’t believe the proposal would result in “material multi-year reductions in mandatory spending and deficits.”
Federal deficits are expected to widen from 6.4% of GDP in 2024 to 9% by 2035, driven by increased interest payments on debt, rising entitlement spending and relatively low revenue generation.
Moody’s goes from negative to stable outlook
The agency also changed its outlook to stable from negative to reflect “balanced risks at Aa1,” noting that the nation retains “exceptional credit strengths such as the size, resilience and dynamism of its economy” and the role of the U.S. dollar as the global reserve currency.
And while there has been policy uncertainty in recent months, Moody’s expects the U.S. to continue a “long history of very effective monetary policy” led by an independent Federal Reserve.
How could the downgrade affect consumers?
A lower rating could boost Treasury bond interest rates, increasing government borrowing costs and further driving up the federal debt. And because Treasury bonds influence rates for assets like 30-year fixed mortgages and corporate bonds, a lower credit rating could push up borrowing costs for consumers, as previously reported by USA TODAY.
“For investors, this downgrade may feel more symbolic than actionable. There has been no material uptick in Treasury yields following the announcement, and demand for U.S. debt remains robust,” said James Humphries, managing partner at Mindset Wealth Management in Indianapolis. “However, the long-term implications are clear: continued fiscal expansion without credible efforts to stabilize debt could eventually impact borrowing costs and economic flexibility.”
Contributing: Reuters
