- Moody’s US Credit Rating Now at “AA1”.
- The agency’s prospects on the “stable” country.
- Moody’s cites the rise in debts and the costs of interest.
On Friday, Moody’s lowered the sovereign credit note of the United States due to concerns concerning the growth of the debt of $ 36 dollars in the country. This decision could complicate the efforts of President Donald Trump to reduce taxes and send undulations to the world markets.
Moody’s gave the United States its virgin “AAA” note in 1919 and is the last of the three main credit agencies to demo.
Friday reduction of an “AA1” notch followed a change in 2023 from the agency’s prospects on the sovereign due to broader tax deficits and higher interest payments.
“Administrations and the successive Congress of the United States did not understand the measures aimed at canceling the trend of large annual budgetary deficits and increasing interest costs,” said Moody’s on Friday because it changed its prospects on the United States into “stable” of “negative”.
The announcement sparked criticism from people close to Trump.
Stephen Moore, former main economic advisor of Trump and economist at the Heritage Foundation, described The Move as “scandalous”. “If a government obligation supported by the United States is not a triple A-ASET, then what is it?” He said Reuters.
The Director of Communications of the White House, Steven Cheung, reacted to demotion via an article on social networks, distinguishing the economist of Moody, Mark Zandi, for critic. He called Zandi as a political opponent of Trump.
Zandi refused to comment. Zandi is the chief economist of Moody’s Analytics, which is a distinct entity of the Moody’s credit rating agency.
Since his return to the White House on January 20, Trump has said that he has balanced the budget while his Treasury Secretary, Scott Bessent, had said on several occasions that the current administration aims to reduce the financing costs of the United States government.
But administration attempts to increase income and reduce expenses so far has not managed to persuade investors.
Trump’s attempts to reduce expenses by the Elon Musk government’s efficiency department are far from its initial objectives. And attempts to strengthen income through prices have aroused concerns about a trade war and a global slowdown, swirling markets.
Left without control, these concerns could trigger a rout of the bond market and hinder the ability of the administration to continue its program.
The demotion, which intervened after closing the market, sent returns to higher treasury bonds and analysts said that it could give investors a break when the markets reopen for regular exchanges on Monday.
“This adds essentially to the proof that the United States has too many debts,” said Darrell Duffie, a Stanford finance professor who was part of Moody’s board of directors. “Congress will just have to discipline itself, either get more income or spend less.”
Focus on the deficit
Trump pushes the legislators of the congress under republican control to adopt a bill extending the 2017 tax reductions which were his signature of legislative realization in the first mandate, a decision which, according to non -partisan analysts, will add billions to the debt of the federal government.
The demotion came while the tax bill did not succeed in erasing a key procedural obstacle on Friday, while the Républicains of the hard line requiring reductions in deeper spending blocked the measure in a rare political setback for the Republican President at the Congress.
Moody’s said that the budgetary proposals considered little caused a sustained and multi -year reduction in deficits, and he estimated that the burden of federal debt would reach around 134% of the gross domestic product by 2035, against 98% in 2024.
“Moody’s downside on the United States Credit Credit should be an alarm signal to Trump and the Congress Republicans to end their reckless search for their tax deficit,” said Senate Democrat, Chuck Schumer on Friday. “Unfortunately, I don’t hold back my breath.”
The Cup follows a degradation of Rival Fitch, which, in August 2023, also reduced the sovereign note of the United States of a notch, citing an expected budgetary deterioration and repeated negotiations of the debt towards the thread which threaten the government’s ability to pay its bills.
Fitch was the second major rating agency to withdraw the United States from its tople-A after Standard and the poor did it after the 2011 debt ceiling crisis.
“They must find a credible budgetary agreement which puts the deficit of a downward trajectory,” said Brian Bethune, professor of economics at Boston College, referring to the Republican legislators.
Market fragility
Investors use credit ratings to assess the risk profile of companies and governments when they increase funding for debt capital markets. Generally, the higher the borrower’s rating, the higher its financing costs.
“The demotion of the American credit rating by Moody’s is the continuation of a long trend of budgetary irresponsibility which will possibly result in higher borrowing costs for the public and private sector in the United States,” said Spencer Hakimian, CEO of Tolou Capital Management, a debate fund.
Long -term treasure yields – which increase when the prices of bonds decrease – could increase the backdrop, said Hakimian, except the news on the economic front which could increase the cash demand safely.
The demotion follows increased uncertainty in the American financial markets, as Trump’s decision to impose prices on the main trade partners has made in recent weeks, fears of higher price pressure investors and a net economic slowdown.
“This news comes at a time when the markets are very vulnerable and we will therefore see a reaction,” said Jay Hatfield, CEO at Infrastructure Capital Advisors.