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What Moody’s downgrade of U.S. credit rating means for your money

Finance News — Fri, 06 Jun 2025 14:58:14 +0000

A woman shops at a supermarket on April 30, 2025 in Arlington, Virginia.

Sha Hanting | China News Service | Getty Images

Moody’s decision to downgrade the U.S. credit rating may have consequences for your money, experts say.

The debt downgrade put immediate pressure on bond prices, sending yields higher on Monday morning. The 30-year U.S. bond yield traded above 5% and the 10-year yield topped 4.5%, hitting key levels at a time when the economy is already showing signs of strain from President Donald Trump’s unfolding tariff policy. Bond prices and yields move inversely.

Treasury bonds influence rates for a wide range of consumer loans like 30-year fixed mortgages, and to some extent also affect products including auto loans and credit cards.

“It’s really hard to avoid the impact on consumers,” said Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute.

Moody’s lowers U.S. credit rating

The major credit rating agency cut the United States’ sovereign credit rating on Friday by one notch to Aa1 from Aaa, the highest possible.

In doing so, it cited the increasing burden of the federal government’s budget deficit. Republicans’ attempts to make President Donald Trump‘s 2017 tax cuts permanent as part of the reconciliation package threaten to increase the federal debt by trillions of dollars.

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“When our credit rating goes down, the expectation is that the cost of borrowing will increase,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

That’s because when “a country represents a bigger credit risk, the creditors will demand to be compensated with higher interest rates,” said Johnson, a member of CNBC’s Financial Advisor council.

‘Downgrades can raise borrowing costs over time’

Americans struggling to keep up with sky-high interest charges aren’t likely to get much relief anytime soon amid Moody’s downgrade.

“Economic uncertainty, especially regarding tariff policy, has the Fed — and a lot of businesses — on hold,” said Ted Rossman, a senior industry analyst at Bankrate.

Atlanta Fed President Raphael Bostic said Monday on CNBC’s “Squawk Box” that he now sees only one rate cut this year as the central bank tries to balance inflationary pressures with worries of a potential recession. Federal Reserve Chair Jerome Powell also recently noted that tariffs may slow growth and boost inflation, making it harder to lower the Fed’s benchmark as previously expected.

Douglas Boneparth, another CFP and the president of Bone Fide Wealth in New York, agreed that the downgrade could translate to higher interest rates on consumer loans.

“Downgrades can raise borrowing costs over time,” said Boneparth, who is also on CNBC’s FA council.

“Think higher rates on mortgages, credit cards, and personal loans, especially if confidence in U.S. credit weakens further,” he said.

Which…

Mortgage rates cross back over 7% after U.S. credit downgrade

Finance News — Sun, 01 Jun 2025 14:52:37 +0000

After several weeks of sitting stagnant, mortgage rates surged higher Monday following Moody’s decision to downgrade the U.S. credit rating.

Bond yields rose after the late Friday announcement, and mortgage rates loosely follow the yield on the 10-year Treasury.

The average rate on the popular 30-year fixed loan hit 7.04% on Monday, according to Mortgage News Daily. That is the highest level since April 11.

“The average mortgage lender had to account not only for the market movement in Friday’s closing minutes, but also to the additional weakness seen this morning. That makes for a fairly big jump, day-over-day, but it does very little to change the bigger picture,” said Matthew Graham, chief operating officer at Mortgage News Daily.

The April surge in mortgage rates did have a direct effect on the housing market, causing it to pull back right in the heart of the usually busy spring season. Pending sales of existing homes in April, counted by signed contracts, dropped 3.2% compared with April of last year, according to Realtor.com.

Homebuilders also noted a steep drop in demand in April. Homebuilder sentiment is now at the lowest level since the end of 2023, according to the National Association of Home Builders’ monthly index.

There was a bit of a comeback in mortgage demand from homebuyers in the first two weeks of May, according to a weekly index from the Mortgage Bankers Association, but that was when rates were just sitting right around 6.9%. There has been a marked slowdown among buyers recently, whenever the rate goes over that 7% threshold. In addition, any rate increase will knock some people out of even qualifying for a mortgage.

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Morgan Stanley strategist says market dip over downgrade presents buying

Finance News — Mon, 19 May 2025 19:43:25 +0000

Circle Squared Alternative Investments founder Jeff Sica discusses what Moodys rating cut means for interest rates on Varney & Co.

Morgan Stanley’s top stock market strategist said in a note that any stock market decline that’s linked to Moody’s downgrade of the U.S. credit rating would likely create a buying scenario for the firm.

Mike Wilson, chief stock market strategist at Morgan Stanley, said in his weekly research note that the temporary reduction of tariffs between the U.S. and China was one item that could lead to a more durable rally. A stock market decline following Moody’s downgrade would present an opportunity to buy the dip.

Wilson said that the equity-return-to-bond-yield correlation is currently close to 0 on a scale of -1 to 1. “In our view, a breakout of the 10-year yield above 4.50% would take this correlation negative, and drive more rate sensitivity for equities,” he said.

“Moody’s late-day downgrade of the U.S. credit rating last Friday is also worth considering in this conversation, though Moody’s is the last ratings agency to downgrade the U.S. credit rating, a process that began 14 years ago in the summer of 2011,” Wilson wrote.

MOODY’S DOWNGRADES US CREDIT RATING OVER RISING DEBT

Morgan Stanley’s chief market strategist said a stock dip on the Moody’s downgrade could present a buying opportunity. (Shannon Stapleton/Reuters / Reuters Photos)

“In short, a break above 4.50% in the 10-year yield can lead to modest valuation compression (5% compression is around what we’ve gotten in prior historical analogs) — we would be buyers of such a dip,” he said.

Wilson’s note said that Morgan Stanley economists are less optimistic about two other items on their checklist for a durable market rally, including conditions that would allow the Federal Reserve to start cutting interest rates and a lower yield on the 10-year Treasury note.

TREASURY SECRETARY BESSENT DISMISSES MOODY’S US CREDIT DOWNGRADE AS ‘LAGGING INDICATOR’

Treasury Secretary Scott Bessent dismissed the downgrade as a lagging indicator for the economy. (Nathan Howard/Reuters / Reuters Photos)

The firm’s forecast projects that the core personal consumption expenditure (PCE) index, a key inflation gauge, is projected to rise in May and continue to increase over the summer. Core PCE was 2.6% in April while the standard PCE index was 2.3% last month — both figures are above the Fed’s 2% target rate.

“In short, we’re unlikely to see near-term progress on the last two items on our check list for a more sustained rally — a more dovish Fed and the 10-year yield below 4.0% without recessionary data,” Wilson wrote.

CBO SAYS US BUDGET DEFICITS TO WIDEN, NATIONAL DEBT TO SURGE TO 156% OF GDP

Moody’s downgraded the U.S. credit rating over the growing national debt. (SAUL LOEB/AFP via Getty Images / Getty Images)

Moody’s Ratings on Friday downgraded the U.S. credit rating one notch from its top tier of Aaa to Aa1, explaining that the move “reflects the…