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Economic Commentary

Economic Commentary – May 19, 2025

May 19, 2025 by Jeanette Garretty, Chief Economist

Moody’s lowering of the US sovereign credit rating to Aa1 from Aaa was not entirely surprising; S&P cut its rating of the US as a borrower from its highest rating of AAA to AA+ many years ago, as did Fitch’s in 2023. (Note: there are ratings of instruments and ratings of borrowers, and both can fluctuate, possibly in different ways. A lowered rating for a borrower applies to all instruments issued by that borrower — in this case, all Treasury debt.) Some markets have reacted sharply to the news of Moody’s actions, especially in Asia, where US credit ratings have long been part of US esteem and prestige. For a majority of investors, however, the motivations for Moody’s action do not represent new news. It appears that Moody’s may have been waiting to better see the contours of the “big beautiful bill” being pulled together by Congress to humor the Trump administration, and now, having seen something close to the end result, believes that the beautiful bill will not substantially alter the ugly trajectory of government indebtedness. Fitch, in particular, is probably saying, “I told you so, and you could have seen this coming sooner,” but Fitch was criticized at the time for being unusually presumptuous about the future inability of Congress to do anything about US deficits. The Secretary of the Treasury has criticized Moody’s downgrade as a backward-looking action, but it seems quite apparent that Moody is actually looking forward and without a pair of rose-colored glasses. Make no mistake, the US sovereign credit rating is still high, and the economy is, for the moment, the envy of the world. But reality bites. And it turns out that the trade deficit is not the only deficit that leaves a painful mark. 

Data to Watch

  1. Euro Area Inflation for April, released Monday, May 19
  2. US Existing Home Sales for April, released Thursday, May 22
  3. US Initial Job Claims for week ending May 17, released Thursday, May 22
  4. S&P Global Purchasing Managers Index, first report for May, released Thursday, May 22

Suggested Reading

  1. Meet the ‘Stealthy Wealthy’ Who Make Their Money the Boring Way
  2. Moody's downgrade intensifies investor worry about US fiscal path
  3. The AI Hiring Pause is Officially Here
  4. Fed Data Shows Credit Card Balances Decline in Q1, but 90-Day Delinquencies Surge
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