the staff of the Ridgewood blog
New York NY, Moody’s Investors Service has officially downgraded the U.S. credit rating from Aaa to Aa1, ending a perfect score the country held since 1917. The move, announced Friday, reflects growing concerns over the rising federal deficit, soaring interest payment ratios, and sluggish economic growth.
This downgrade makes Moody’s the last of the three major credit agencies to strip the United States of its perfect credit rating, following similar actions by S&P Global in 2011 and Fitch Ratings in 2023.
Why Moody’s Downgraded the U.S. Credit Rating
Moody’s cited several key reasons for its downgrade:
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Federal debt is projected to rise from 98% of U.S. GDP in 2023 to 134% by 2035.
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The deficit is forecast to reach nearly 9% of GDP, significantly higher than peer countries.
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A decade-long upward trend in interest-to-GDP ratios that Moody’s believes will weaken fiscal stability.
These troubling trends may signal increased risk for U.S. bond investors, potentially leading to higher borrowing costs for the federal government as investors demand higher yields on U.S. Treasury securities.
Market Reaction: Treasury Yields Rise
Following the downgrade, Treasury yields spiked, hitting key resistance levels:
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30-year yield peaked at 5.03%, a level not seen since November 2023, before settling at 4.921%.
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10-year yield rose to 4.459%, up 2 basis points.
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2-year yield dipped slightly to 3.972%.
Note: One basis point equals 0.01%, and bond prices move inversely to yields.
Despite the downgrade and yield movement, stock markets remained resilient.
Stock Market Stays Strong
On Monday:
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S&P 500 posted a modest gain of 0.09%, marking its sixth consecutive positive session.
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Dow Jones rose 137 points or 0.32%.
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Nasdaq Composite edged up 0.02%.
The markets appear to be shrugging off concerns tied to the downgrade, inflation, and even looming recessionary fears. The S&P 500 now sits just 3% below its record high, suggesting investors remain optimistic about long-term growth.
Political Overtones and Market Sentiment
Some critics argue that the downgrade is years overdue, claiming it’s part of a broader media effort to distract from economic progress under President Donald Trump. Claiming the downgrade only strengthens the presidents hand using DOGE to cut spending, tariffs to increase revenues boosting his focus on government realignment. Still, many experts see the downgrade as a long-term fiscal red flag.
With upcoming elections, rising debt, and shifting interest rates, the U.S. economy faces critical choices ahead. For now, the downgrade serves as a stark reminder of the country’s fiscal vulnerabilities, even as Wall Street shows continued resilience.
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Keep running deficits. We need a balanced budget amendment and term limits.