Investors Await Another Monday Jolt After Moody’s Downgrades US

Rising Treasury yields would also complicate the government’s ability to cut back by running up its interest payments, while also threatening to weaken the economy by forcing up rates on loans such as mortgages and credit cards.

US Treasury Secretary Scott Bessent downplayed concerns over the US’s government debt and the inflationary impact of tariffs, saying the Trump administration is determined to lower federal spending and grow the economy.

Asked about the Moody’s Ratings downgrade of the country’s credit rating Friday during an interview on NBC’s Meet the Press with Kristen Welker, Bessent said, “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies.”

In a move that may help temper some of the negative market sentiment, President Trump said over the weekend he’ll have a phone call with Russian President Vladimir Putin on Monday morning to discuss how to stop the war in Ukraine.

Moody’s move was anticipated by many given it came when the federal budget deficit is running near $2 trillion a year, or more than 6% of gross domestic product. The US government is also on track to surpass record debt levels set after World War II, reaching 107% of GDP by 2029, the Congressional Budget Office warned in January.

Moody’s said it expects “federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”

Despite such sums, lawmakers will likely continue work on a massive tax-and-spending bill that’s expected to add trillions to the federal debt over the coming years. The Joint Committee on Taxation had pegged the total cost of the bill at $3.8 trillion over the next decade, though other independent analysts have said it could cost much more if temporary provisions in the bill are extended.

Analysts at Barclays Plc said in a report that they did not expect the Moody’s downgrade to change votes in Congress, trigger forced selling of Treasuries or have much impact on money markets. Treasuries have often rallied after similar actions in the past.

“Credit downgrades of the US government have lost political significance after S&P downgraded the US in 2011, and there were limited, if any, repercussions,” said Michael McLean, Anshul Pradhan and Samuel Earl of Barclays.

Around the same time Moody’s was announcing its decision, the US Treasury was reporting China had reduced its holdings of Treasuries in March. While that may further encourage speculation the world’s second largest economy is lowering its exposure to US debt and the dollar, Brad Setser, a former Treasury official, said on X that the data suggested “a move to reduce duration than any real move out of the dollar.”

Despite the recent trade tensions and worries over fiscal profligacy, the Treasury statistics suggested foreign demand for US government securities remained strong in March, indicating no signs of a revolt against American debt.

Still, traders will be hard at work early again on Monday, just a week since they had to react quickly to weekend news of an improvement in trade relations between the US and China.

--With assistance from Greg Ritchie.