[Text/Observer Network Xiong Chaoyan] Local time on May 16, due to the increase in U.S. government debt and interest rate payment ratio, the international credit rating agency Moody's decided to downgrade the U.S. sovereign credit rating from Aaa to Aa1, while adjusting the U.S. sovereign credit rating outlook from "negative" to "stable". The other two major international credit rating agencies, Fitch and Standard & Poor's, have downgraded the U.S. sovereign credit rating respectively in 2023 and 2011. Currently, the U.S. has lost its highest AAA rating at all three major international credit rating agencies.

According to a Bloomberg report on May 18, U.S. Treasury Secretary Beasant downplayed concerns about the impact of U.S. government debt and tariffs on companies like Walmart on inflation on the same day. He not only "blamed" the Biden administration but also insisted that the Trump administration was determined to reduce federal spending and promote economic growth. When asked about Moody's downgrade of the U.S. sovereign credit rating, he claimed: "Moody's is a 'lagging indicator' - this is how everyone views credit agencies."

However, Reuters reported on the same day that Moody's action has exacerbated investor concerns that U.S. debt may become a "time bomb," which could prompt bond market activists who hope for more fiscal tightening measures by the U.S. government. The report cited market analysts as saying that the market has already shown deep concern over the U.S. fiscal situation, and Moody's downgrade may make investors more cautious and ultimately lead to an increase in borrowing costs for both public and private sectors in the U.S.

May 18, Beasant appeared on NBC's "Meet the Press" program Video screenshot

"The current situation was not caused by the past 100 days," said Beasant in an interview with NBC's "Meet the Press" program on May 18. "We inherited the spending of the Biden administration and the past four years, and we are determined to reduce spending and promote economic growth."

Beasant also revealed that he had spoken with Walmart CEO Doug McMillon the previous day to discuss the latest signs of the retail giant potentially raising prices due to rising import tariffs. Previously, former President Trump had posted on social media threatening Walmart to stop attributing price increases to tariffs and "absorb the tariffs itself."

"As was done between 2018 and 2020, Walmart does indeed absorb some tariff pressure as you mentioned," Beasant said. "Overall, service sector inflation is falling, and we have witnessed the first decline in the inflation rate in four years."

Beasant emphasized that he did not put pressure on retailers. "I have a good relationship with Doug, so I just wanted to hear it directly from him rather than secondhand and thirdhand information from the media. These pieces of information all come from their earnings conference calls, and companies must disclose worst-case scenarios in such settings." He also noted that the Federal Reserve "did not assert that tariffs would cause inflation; they merely stated that they were uncertain and currently in观望 mode."

After the high-level economic and trade talks between China and the U.S. reached a joint statement, Beasant said, "We now have a mechanism to continue negotiations," "which means that if they do not negotiate sincerely, they will receive a letter regarding tariffs, and I hope everyone will negotiate sincerely." He said that countries receiving this letter will face the so-called "reciprocal tariff rates" announced by the White House on April 2nd.

When asked about sanctions on Russia, Beasant refused to predict what might happen next. He also believed that criticism of Trump possibly accepting a Boeing 747-8 aircraft gifted by Qatar distracted attention from the overall success of his Middle East trip.

"To return to your question about Moody's downgrade, who cares? Qatar doesn't, Saudi Arabia doesn't, the UAE doesn't," Beasant said: "They are all investing and have formulated a 10-year investment plan."

International credit rating agency Moody's Material picture

Reuters reported that at this moment, Republicans controlling both houses of Congress are seeking approval for a comprehensive tax cut, increased spending, and reduced social security benefits package that could increase U.S. debt by trillions of dollars. Despite some optimism in trade, uncertainty about the final form of the so-called "Big Beautiful Bill" has unsettled investors. Although Trump called for unity, the bill failed to clear a key obstacle last Friday.

Carol Schleif, chief market strategist at BMO Private Wealth, a private banking institution, said: "The bond market has been closely watching developments in Washington this year." She said that Moody's downgrade may make investors more cautious.

Spencer Hakimian, founder of New York-based investment firm Tolou Capital Management, said that Moody's downgrade "will ultimately lead to an increase in borrowing costs for both public and private sectors in the U.S."

The report pointed out that market pricing has already reflected this concern. Anthony Woodside, head of fixed income strategy at Legal & General Investment Management, a U.S. investment firm, noted that the recent rise in the 10-year U.S. Treasury term premium (i.e., the return rate investors require for holding long-term bonds) reflects to some extent market concerns about the fiscal situation. He said that the market "does not fully believe" that deficits can be substantially reduced.

Beasant once said that the government is focusing on controlling the benchmark 10-year Treasury yield. The latest yield is 4.44%, still about 17 basis points lower than the level when Trump first took office in January 2017. "Given the already high deficit, if the deficit continues to increase significantly, Treasury yields will inevitably respond," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

On the same day that Moody's announced the downgrade of the U.S. sovereign credit rating, Steven Cheung, director of the White House Office of Communications and assistant to the president, criticized Moody's chief economist Zandi by name, considering the downgrade as a "political decision targeting Trump." He posted on the X platform: "Mark Zandi, an economist at Moody's, was an advisor to Obama and a donor to Clinton, and has been an 'anti-Trump' since 2016. No one takes his 'analysis' seriously, and he has been proven wrong time and again."

Reuters pointed out that as the critical deadline approaches, urgency is increasing. House Speaker Johnson said he hoped the House would pass the "Big Beautiful Bill" before the Memorial Day holiday on May 26th, while Beasant urged lawmakers to raise the federal government's debt ceiling before mid-July.

Previously, the U.S. government had already reached the statutory borrowing limit in January and began taking "extraordinary measures" to avoid exceeding the limit. Beasant warned that the U.S. government may reach the so-called "X-day" as early as August - the critical point where there is no cash to fulfill all debts.

This article is an exclusive contribution by Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7505946344654127670/

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