Moody’s downgrade of the U.S. credit rating from Aaa to Aa1 on May 16, 2025, the last of the major rating agencies (after S&P in 2011 and Fitch in 2023) to do so. It attributes the downgrade to the U.S.’s rising debt burden, projected to reach 144% of GDP by 2034, and persistent fiscal deficits.
Why the Impact Is Muted:
- Lack of Surprise: Unlike 2011, when the S&P downgrade shocked markets, the 2025 downgrade was widely anticipated due to years of fiscal mismanagement. The article states, “There is no new information in Moody’s downgrade,” echoing the sentiment in your quote.
- Market Expectations: Investors have long priced in U.S. fiscal challenges, with the article noting that “everyone knows the U.S. government spends recklessly,” similar to your quote’s “spends like drunken sailors.”
- Timing Critique: The article suggests Moody’s is late, stating that the downgrade “should have happened years ago,” aligning with your quote’s claim that “Moody’s is simply 14 years too late.”
Political Context: The article mentions the political backdrop, including President Trump’s proposed fiscal policies. It references a reconciliation bill with tax cuts and spending reductions, but notes that the House Budget Committee rejected it on May 16, 2025, due to opposition from conservative Republicans. This contrasts with your quote’s claim that the committee “advanced the reconciliation bill.”
Market Implications: Limited market disruption compared to 2011, as global demand for U.S. Treasuries remains strong, and the U.S. dollar’s reserve currency status mitigates fallout. It also discusses “stock market bulls” hoping for Trump’s fiscal reforms, similar to your quote’s reference to “President Trump’s ‘big beautiful bill.’”
En español aquí:
https://mariorandholm.substack.com/p/rebaja-de-la-calificacion-crediticia
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