Big setback for President Trump as Moody's downgrades U.S. Economy

Republican dissenters block President's tax cut agenda in house committee

- BY T N ASHOK

It's the turn of the United States government to face a sovereign rating being downgraded by Moody's from its top AAA rating - Moody's keeps downgrading the ratings of many developing countries including India.

Moody's Ratings cut the United States’ sovereign credit rating down a notch to Aal from the Aaa, the highest possible, however Asl would mean the economy is stable but not strong.

Moody's cited the burgeoning debt burden of the US government in financing the federal government's budget deficit and rising cost of rolling over existing debt amid high interest rates. A sign that it has inherited the burden from the previous Biden government and nothing in 100 days to bring down the debt or the cost of servicing the debt.

"This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns," the ratings agency said in a statement.

The decision to lower the United States credit profile could be expected, at the margin, to lift the yield that investors demand in order to buy U.S. Treasury debt to reflect more risk, and could dampen sentiment toward owning U.S. assets, including stocks. Having said that, all the major credit rating agencies continue to give the United States their second-highest available rating.

The yield on the benchmark 10-year Treasury note climbed 3 basis points in after-hours trading, trading at 4.48%. The iShares 20+ Year Treasury Bond ETF fell about 1% in extended trading, while the SPDR S&P 500 ETF Trust fell 0.4%.

Moody’s had been a holdout in keeping U.S. sovereign debt at the highest credit rating possible and brought the 116-year-old agency into line with its rivals. Standard & Poor’s downgraded the U.S. to AA+ from AAA in August 2011, and Fitch Ratings also cut the U.S. rating to AA+ from AAA, in August 2023.