US Federal Debt Loses Triple-A Credit Rating

On Monday, news broke that the US federal government’s rapidly increasing debt has lost its final triple-A credit rating, raising fresh concerns for a market that is already quite volatile. Long-term borrowing costs are climbing, and stock values are struggling.

Moody’s, a credit rating agency, downgraded the US economy by one notch to AA1 last Friday, marking it as the last of three agencies to lower the country’s standing from a triple-A rating.

The agency expressed concerns that the US budget deficit would continue to grow, particularly as Donald Trump seeks to advance his ambitious tax and spending proposals in Congress. They pointed out that there hasn’t been consensus among US administrations or Congress to take necessary steps to reverse the trend of large annual fiscal deficits and rising interest rates. “We don’t believe that any significant reductions in mandatory spending or deficits will arise based on current proposals,” they added.

Officials from the Trump administration have attempted to downplay the severity of this downgrade. Treasury Secretary Scott Bescent explained on NBC that “Moody’s is just one metric to keep an eye on.”

The US president remained quiet about the credit rating downgrade. On Monday morning, instead of addressing the issue, he used social media to criticize celebrities like Beyoncé and Bruce Springsteen, who recently spoke out against him at a Manchester concert.

In a rare Sunday night vote, House Republicans advanced Trump’s tax cut and spending packages through major committees. It’s estimated that the proposed legislation could increase the US debt by $500 million over the next decade.

On Wall Street, the S&P 500 index dipped by 0.4% in early trading, while the tech-heavy NASDAQ composite dropped 0.6%. In London, the FTSE 100 saw a slight decrease of 0.1%.

The bond market is feeling the pinch, too. The yield on 30-year US Treasury bonds climbed to 5.026%, reflecting an increase of 13 basis points. This rise indicates that investors are demanding higher returns to hold US debt as prices fall. Additionally, the dollar has weakened against other currencies.

Moody’s warned that, if government revenues remain steady while mandatory spending increases, the deficit could widen significantly over the next decade. “A sustained, large fiscal deficit will lead to heavier government debt and interest burdens. The fiscal performance of the US may soon be compared with other highly rated countries, drawing a stark contrast with its own historical performance,” they concluded.