Trump's Tariffs Won't Solve the Fiscal Deficit Crisis: Gerry Baker
U.S. Credit Score Drops Due to Increasing National Debt (According to Moody's)
Get the scoop on the impact of Donald Trump's tax reform and tariffs on the U.S. fiscal deficit with Fox News contributor Gerry Baker on Varney & Co.
Moody's Ratings has just dropped the U.S. credit rating from the highest possible Aaa to Aa1. This downgrade is due to ongoing fiscal deficits, which Moody's believes will only worsen in the future.
The U.S. government's credit rating now stands at Aa1 on Moody's 21-notch rating scale. Moody's also adjusted its outlook from negative to stable.
In their announcement, Moody's pointed out that the downgrade reflects a significant increase in government debt and interest payment ratios over the last decade, making the U.S. less creditworthy relative to similarly rated governments.
The CBO recently projected that U.S. budget deficits will widen, and the national debt will surge to 156% of GDP.
Moody's explains that repetitive fiscal proposals under consideration in Washington won’t result in substantial multi-year reductions in mandatory spending and deficits, hindering efforts to reverse the trend of large annual fiscal deficits.
They also predict a worsening fiscal outlook, with spending on entitlement programs like Medicare and Social Security rising alongside the U.S. population's aging, and escalating interest payments due to widening deficits and higher interest rates.
Jamie Dimon recently warned that a recession is still a possibility, and the current fiscal situation isn't doing much to dispel those concerns. Over the next decade, Moody's anticipates growing deficits as entitlement spending rises, while government revenue remains flat.
While Moody's lowered the U.S. credit rating, they also changed their outlook from "negative" to "stable," suggesting balanced risks at the Aa1 tier. Moody's highlights the U.S.'s economic powerhouse, the role of the U.S. dollar as the global reserve currency, and the effectiveness of monetary policy led by an independent Federal Reserve as factors contributing to a stable credit standing.
The downgrade follows closely on the heels of Donald Trump's tax bill failing to clear a key procedural hurdle in Congress last week.
In 2023, rival firm Fitch also lowered the U.S. sovereign rating by one notch, citing expected fiscal deterioration and repeated controversial debt ceiling negotiations that threaten the government's capacity to meet its obligations.
Sources:1. Moody's Downgrades U.S. Credit Rating, Citing Persistent Fiscal Deficits2. Moody's Update on U.S. Sovereign Credit Rating Outlook3. Why Moody's Downgraded the U.S. Credit Rating4. U.S. Downgraded by Moody's: What You Should Know5. The Long-Term Effects of the U.S. Credit Downgrade on the Economy
- The downgrade of the U.S. credit rating by Moody's to Aa1 is due to persistent fiscal deficits and a significant increase in government debt, which has led to higher interest payment ratios.
- Moody's predicts a worsening fiscal outlook, with growing deficits as entitlement spending rises, while government revenue remains flat, despite ongoing discussions about fiscal proposals in Washington.
- The escalating interest rates and the population's aging are expected to result in rising spending on entitlement programs like Medicare and Social Security, worsening the fiscal deficit, and affecting the general news and politics in the upcoming years.
){kind=link}