There’s at least one positive for battered investors to digest after Monday’s market rout and various concerning presidential tweets on trade in recent weeks: The sterling U.S. credit rating is unlikely to get slashed this year.
“The U.S. economy is still the largest economy in the world and the outlook on the credit rating is not just about the economy,” explained Moody’s Investor Service credit strategist Atsi Sheth on Yahoo Finance’s The First Trade. “It’s about the government’s ability and willingness to repay its debt — which we think is still stable.”
Moody’s has a Aaa credit rating on the U.S. accompanied with a Stable outlook. The rating, according to Moody’s, means it judges U.S. debt at the highest quality and is also subject to the lowest level of credit risk. Meanwhile, Fitch continues to hold a pristine triple-A rating on the U.S., as well.
The group’s rival S&P made headlines back in 2011 by downgrading the U.S. credit rating to AA+ from its pristine AAA. S&P continues to hold that view on U.S. debt but has since revised its outlook to Stable.
“The U.S. is still the lowest risk asset out there,” Sheth says.
That’s important for investors to hear right now for numerous reasons.
For starters, higher borrowing costs for the U.S. — which is what would likely come by rating agencies issuing downgrades or cuts to their outlooks — is the last thing the country needs as it barrels toward a $1 trillion deficit this year. The U.S. has been able to incur such deficits to fund President Donald Trump’s tax cut and various social programs in large part because it could borrow money on the cheap.
And secondarily, a ratings agency credit downgrade would raise the cost of capital for consumers and businesses. That’s the last thing these two groups need at a time of slowing growth due mostly to tariffs on China — it could easily stunt capital investment, spending intentions and hiring plans.
Queue sharp downgrades to Wall Street’s GDP and corporate profit scenarios.
So, for the time being... be more worried about currency and trade wars (and those presidential tweets).