The one-notch cut comes more than a year after Moody’s
changed its outlook on the US rating to negative. The federal budget deficit is
running near US$2 trillion a year, or more than 6% of gross domestic product,
and Congressional Republicans are pushing through budget legislation that could
add trillions of dollars more.
“While
we recognize the US’ significant economic and financial strengths, we believe
these no longer fully counterbalance the decline in fiscal metrics,” Moody’s
wrote in a statement.
Earlier on Friday, new data showed US consumer sentiment has
fallen to the second-lowest level on record, and inflation expectations
climbed to multi-decade highs.
The
preliminary May sentiment index declined to 50.8 from 52.2 a month
earlier, according to the University of Michigan. That was lower than all but
one estimate in a Bloomberg survey of economists. The main reason cited was
President Donald Trump’s trade war.
Nearly three-fourths of respondents to the Michigan survey
spontaneously mentioned tariffs. The topic crosses partisan lines, including a
notable share of Republicans bringing it up. The new, sobering survey data
comes as inflation data from the Trump administration’s Department of Labor has
been unexpectedly upbeat, coming in softer than estimates three months in
a row.
