Your Money
Late last week, Moody’s downgraded the U.S. government's credit rating from Aaa to Aa1, marking the first time all three major rating agencies have removed the nation’s top-tier status. The downgrade reflects concerns over rising debt levels, increasing interest costs, and persistent political gridlock hindering effective fiscal management.
Moody’s projects that the U.S. debt-to-GDP ratio could reach 134% by 2035, up from 98% in 2024, citing a lack of substantial fiscal reforms. The recent approval of President Trump's $3.8 trillion tax cut package, which lacks corresponding spending cuts or new revenues, has further exacerbated concerns about fiscal sustainability.
In response to the downgrade, financial markets reacted with increased volatility. U.S. stocks, bonds, and the dollar declined, with the 10-year Treasury yield briefly surpassing 4.55% and the 30-year yield exceeding 5%, indicating higher borrowing costs for the government.
Analysts warn that continued fiscal indiscipline could lead to further market instability. The term "bond vigilantes" has resurfaced, describing investors who sell off government bonds in response to unsustainable fiscal policies, thereby raising yields and borrowing costs.
Despite the downgrade, Moody’s maintains a stable outlook for the U.S., citing the country's economic resilience and the U.S. dollar's role as a global reserve currency. However, the agency cautions that without meaningful fiscal reforms, the U.S. may face additional downgrades in the future.
U.S. Downgraded by Moody’s as Trump Pushes Costly Tax Cuts
by Tony Romm, Andrew Duehren and Joe Rennison
|
