Stock markets drop after US credit rating downgraded by Moody’s – business live | Business


Introduction: US digests Moody’s credit rating downgrade

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How did the US lose its triple-A credit rating? Gradually, then suddenly.

Moody’s dealt the death blow on Friday afternoon, announcing it was cutting its rating on US government debt to Aa1, one notch down from the gold-standard Aaa.

This is 14 years after S&P became the first major agency to downgrade the US, with Fitch following suit in 2023.

Moody’s cited the swelling US national debt – now $36trn – and growing interest costs, saying:

Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.

Treasury secretary Scott Bessent tried to brush aside the issue, telling CNN that he “does not put much credence in the Moody’s” downgrade.

We’ve inherited a 6.7% deficit-to-GDP, the highest outside war or recession.

Our focus is to grow the economy faster than the debt, that’s how we will stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t

— Treasury Secretary Scott Bessent (@SecScottBessent) May 18, 2025

Bessent took a similar line to NBC, telling their Meet the Press program:

I think that Moody’s is a lagging indicator. I think that’s what everyone thinks of credit agencies. Larry Summers and I don’t agree on everything, but he said that’s when they downgraded the U.S. in 2011. So it’s a lagging indicator.

Investors may take the same view. After all, Moody’s is only reacting to information already available to the market.

On the other hand…. US borrowing costs have been rising in recent years, adding to fiscal pressures. Moody’s downgrade could be an excuse for some bond-holders to sell, pushing down prices and raising yields (the interest rate on Treasury bonds).

The timing of Moody’s move has prompted some eyebrow-raising, at a time when some Republican rebels in Congress had been opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal position even worse.

The agenda

  • 9.30am BST: S&P Global UK Consumer Sentiment Index

  • 10am BST: Eurozone inflation report for April (final reading)

  • 3pm BST: Conference Board Leading Economic Index of the US economy

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Key events

Economic risks are weighing on the US dollar today, reports Susannah Streeter, head of money and markets at Hargreaves Lansdown:

‘’Like a long weekend hangover, a headache of worry is seeping into sentiment today. The FTSE 100 has opened lower, as investors mull over the downgrading of the US sovereign credit rating on Friday.

Moody’s stripped the US of its triple-A rating, citing the growing US fiscal deficit, and the higher borrowing costs the administration will be forced to pay. Given the pledge by Trump to cut taxes, it’s feared the situation could deteriorate further. More of a sombre mood is expected on Wall Street when trading opens later, with futures indicating falls of around 1% for the S&P 500 and 1.3% for the Nasdaq.

The implications of Trump’s erratic policymaking are causing caution to creep back in, dampening down the enthusiasm of recent weeks. US Treasury yields have risen as investors sold off US bonds, with the yield on 30-year US debt hitting 5%, the highest level since April, amid the Liberation Day turmoil.

A more risk-off environment is emerging again, with gold climbing higher after its losses of recent weeks, as investors look again for shelter for some of their money. The dollar has not regained its safe-haven allure, instead it’s fallen back against a basket of currencies, as US economic risks loom.





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