NEW YORK (Canadatrendsnow) – On Friday, Moody’s lowered the U.S. credit rating by one step to “Aa1” from “Aaa,” pointing to increasing debt levels and notably higher interest rates compared to other similarly rated countries.
President Donald Trump of the United States faced a significant political defeat in Congress when his extensive tax legislation could not overcome an important procedural obstacle on Friday. Conservative Republicans who sought more substantial reductions in government expenditure obstructed the proposal, marking an unusual challenge for the GOP leader.
The legislation, as drafted, would contribute trillions of dollars to increase the federal government’s existing $36.2 trillion debt within the coming ten years.
Moody's stated in a release that consecutive US administrations and Congresses have been unable to reach an agreement on steps needed to counteract the ongoing issue of substantial yearly budget shortfalls and escalating interest expenses.
U.S. Treasury securities declined, with yields increasing later on Friday following the news announcement.
COMMENTS:
STEPHEN MOORE, PREVIOUSLY A HIGH-LEVEL ECONOMIC ADVISOR TO PRESIDENT DONALD TRUMP AND AN ECONOMIST FOR THE HERITAGE FOUNDATION
Unbelievable. Moody’s seems to have transformed into a branch of the Democratic Party. Could you explain how prolonging the Trump tax cuts will lower the value of these bonds? If a U.S.-backed government bond doesn’t qualify as a triple-A asset, then what does?
CHRISTOPHER HODGE, LEAD U.S. ECONOMIST, NATIXIS, NEW YORK
Irresponsible financial practices and poor governance – such as recurrent disputes over raising the debt ceiling – are not novel issues, and there will eventually come a time when Congress must address excessive government spending. However, the United States' ability to borrow remains unparalleled, along with its potential for generating tax revenues. Undoubtedly, the U.S. faces a significant issue where overspending leads to mounting debts; nonetheless, it’s unlikely that this pattern will result in default within the coming years. Eventually, market forces will enforce necessary cutbacks, yet currently, there continues to be strong demand for U.S. debt.
TOM DI GALLOMA, THE MANAGING DIRECTOR OF RATES AND TRADING AT MISHLER FINANCIAL IN PARK CITY, UTAH,
This is quite unexpected. It’s significant because the markets definitely didn’t see this coming. I believe it underscores the issues surrounding the budget discussions in Congress; as a matter of fact, the bill did not make it through the House committee today.
JASON KAHN, CHIEF EXECUTIVE OFFICER, TOLOU CAPITAL MANAGEMENT, NEW YORK
The decision by Moody’s to lower the US credit rating is part of an ongoing pattern of financial mismanagement that will ultimately result in increased lending expenses for both government and businesses within the country.
I didn't flinch at all; this wasn't surprising in the least.
Brian Bethune, an economics professor at Boston College, located in Newton, Massachusetts
This seems quite akin to what S&P executed back in 2011. The downgrade announced by S&P wasn’t favorably viewed by the market, resulting in a budget sequestration deal... this ultimately brought about a decrease in the deficit. Later on, during his initial term, Trump slashed tax rates, causing us to retreat from the previously reached consensus.
The downgrade serves as an alarm for Republicans. They must develop a convincing budget deal that reduces the deficit.
JAY HATFIELD, Chief Executive Officer at Infrastructure Capital Advisors, located in New York
This information arrives when the markets are particularly susceptible, and as such, we're likely to observe some form of response. My prediction is for the S&P to drop by approximately 100 points; however, I anticipate it will find stability towards the end of the week. It’s possible that the recent announcements regarding tariffs may have contributed significantly to this downturn, though they might not explicitly admit it.
(Collated by the Global Finance & Markets Breaking News Team)
