Moody’s Investors Service downgraded the United States’ sovereign credit rating from Aaa to Aa1 on Friday, marking a significant shift in the nation’s financial standing. This decision portends bad things for the U.S. economy thanks especially to a continuing policy of protectionist and inflationary tariffs and an increasing federal debt. It would be profoundly harmful to American consumers and their pocketbooks.
Today’s downgrade will ultimately mean Americans everywhere pay more to borrow, experts are sounding the alarm. In the immediate aftermath of Moody’s announcement, the yield on 30-year U.S. bonds skyrocketed past 5%, and the 10-year yield rose over 4.5%. These changes will exacerbate the financial burden for all borrowers, especially those borrowers who hold variable-rate loans.
With a recession likely on the horizon, President Donald Trump’s tariff policy is adding unnecessary pressure on the U.S. economy. As a consequence, companies and households are hit with increased expenses. Americans are already bearing the brunt of soaring-interest fees. The average credit card rate is now about 20.12%, barely a percentage point below last summer’s all-time high of 20.79%.
The prevailing wisdom is that the price of borrowing will go up, noted Ivory Johnson, a financial expert. “When our credit rating goes down, creditors will demand to be compensated with higher interest rates, as the country represents a bigger credit risk.”
As the cost of borrowing continues to climb, consumers will continue to face challenges making ends meet. Then, as of May 16, the average rate for a 30-year fixed-rate mortgage hit 6.92%. At the same time, 15-year mortgages had a 6.26% average. The fed funds range has remained at 4.25% – 4.5% since December of 2024. Consequently, millions of Americans may have to wait much longer to see relief from exorbitantly high-interest charges.
Douglas Boneparth, a member of CNBC’s FA council, indicated that downgrades can have long-lasting effects, stating, “Downgrades can raise borrowing costs over time.” He further elaborated that consumers should “think higher rates on mortgages, credit cards, and personal loans, especially if confidence in U.S. credit weakens further.”
The potential for increased borrowing costs coincides with ongoing discussions among Republicans about making President Trump’s 2017 tax cuts permanent. Financial analysts are sounding the alarm about these moves. They think they can just increase federal debt by the trillions, increasing the economic burden and worsening the effect of the credit downgrade.
Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute, emphasized that it is difficult for consumers to avoid the fallout from this downgrade. “It’s really hard to avoid the impact on consumers,” he stated, reflecting widespread concern among financial experts about how this change in credit rating will affect everyday Americans.
…this is not a signal of U.S. decline. Fancy-pants analysts still insist that the U.S. remains, by all means, the dominant player in the global economy. “The U.S. still maintains its dominance as the safe haven economy of the world, but it puts some chinks in the armor,” Rehling noted.