Moody’s Warns of Increased Fiscal Risk in the US

The fiscal health of the United States may be at a higher risk following the victory of Republican Donald Trump in the presidential election, warns ratings agency Moody’s. This warning comes in light of the potential Republican majority in Congress, which could further influence fiscal policy and the national debt.

Impact on US Budget Deficit and Public Debt

Several estimates have indicated that the US budget deficit and public debt were expected to rise significantly, irrespective of the election results. However, according to Reuters, Kamala Harris’ proposed measures were anticipated to result in a smaller increase in debt compared to Donald Trump’s plans.

Consequences of Trump’s Victory

Trump’s victory has already had a notable impact on government bonds which experienced a massive sell-off. Investors are predicting that Trump’s proposed tax cuts and trade tariffs could potentially boost economic growth. However, these measures are also expected to surge inflation and the budget deficit.

Moody’s Warning and Its Implications

Moody’s has cautioned that the absence of measures to curtail the fiscal deficit could further deteriorate the US government’s credit profile. The agency also highlighted that the Republican control of the legislature and executive branch could lead to swift changes in fiscal policy. These changes could directly impact key sectors such as manufacturing, technology, and retail.

Last year, Moody’s downgraded the outlook on the US rating from ‘stable’ to ‘negative’. This indicates that the agency could decide on a further downgrade in the next 18-24 months.

Conclusion

Moody’s warning about the US’s fiscal health underscores the need for prudent fiscal measures and policies. The potential implications of these developments could have a lasting impact on the US economy and its sectors.