U.S. Treasury Secretary Downplays Moody's Credit Rating Downgrade

U.S. Treasury Secretary Scott Bessent has downplayed the significance of Moody's recent decision to lower the U.S. government's credit rating from AAA to Aa1. In an interview, Bessent described Moody's as a "lagging indicator" of the nation's fiscal health, suggesting that the rating agency's assessment is reactive rather than proactive. He emphasized that the downgrade was not a sudden development but a result of long-term fiscal policies implemented by previous administrations.

Bessent noted that the current administration, along with previous ones, has contributed to the fiscal challenges that led to the downgrade. "We didn't get to this point in the last 100 days. We inherited these issues," he stated, highlighting the administration's commitment to reducing federal spending and promoting economic growth. He also mentioned that the U.S. government is determined to address the fiscal challenges and ensure the stability of the economy.

Bessent's comments come at a time when the U.S. is grappling with significant fiscal challenges, including a federal budget deficit that has reached nearly 2 trillion dollars annually, exceeding 6% of GDP. The Congressional Budget Office had previously warned that U.S. government debt is on track to surpass post-World War II records, reaching 107% of GDP by 2029. Despite these concerns, Bessent remains optimistic about the U.S. economy's resilience. He believes that the administration's policies will help mitigate the impact of the downgrade and ensure long-term economic stability.

Bessent also addressed concerns about the impact of tariffs on inflation, particularly in relation to major retailers like Walmart. He mentioned that he had discussed the issue with Walmart's CEO, Doug McMillon, and that the retailer would absorb some of the tariff costs, as it had done in previous years. Bessent also noted that overall service sector inflation has been declining, marking the first decrease in four years. He emphasized that the administration is committed to addressing fiscal challenges while promoting economic growth, aiming to restore confidence in the U.S. economy.

In response to questions about the administration's approach to trade negotiations, Bessent stated that the U.S. has established a mechanism for continued dialogue with China following the recent tariff truce. He also indicated that the administration is prepared to impose unilateral tariffs on other countries if they do not engage in good-faith negotiations. Bessent's remarks underscore the administration's focus on addressing fiscal challenges while promoting economic growth, aiming to restore confidence in the U.S. economy.