NEW YORK, May 16 (Reuters) - Moody's on Friday downgraded the credit rating of the United States by a notch to "Aa1" from "Aaa", citing rising debt and interest "that are significantly higher than similarly rated sovereigns".
U.S. President Donald Trump's sweeping tax bill failed to clear a key procedural hurdle on Friday, as hardline Republicans demanding deeper spending cuts blocked the measure in a rare political setback for the Republican president in Congress.
As written, the bill would add trillions of dollars to the federal government's $36.2 trillion in debt over the next decade.
"Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's said in a statement.
U.S. Treasury securities fell and yields rose late Friday after the news.
COMMENTS:
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK
"Fiscal profligacy and irresponsible governance - including the perpetual debt ceiling standoffs - aren't new and there will be a day of fiscal reckoning when Congress will have to reign in debt. But the US borrowing capacity is still unrivaled and potential revenue generation is unmatched. No doubt the US has a spending fueled debt problem, but there is little chance - at least in the medium term - that the US won't make good on its obligations. At some point the market will impose discipline that will force cuts but demand at the moment is still ample for US debt."
TOM DI GALOMA, MANAGING DIRECTOR OF RATES AND TRADING, MISCHLER FINANCIAL, PARK CITY, UTAH
"Very surprising. This is big, markets were not expecting this at all. I think that is highlighting the problems on the budget talks in Congress, the bill failed to pass today in the House committee."
SPENCER HAKIMIAN, CEO, TOLOU CAPITAL MANAGEMENT, NEW YORK
“The downgrade of the US credit rating by Moody’s is a continuation of a long trend of fiscal irresponsibility that will eventually lead to higher borrowing costs for the public and private sector in the United States.”
“I didn’t even blink, totally not a surprise for me.”
BRIAN BETHUNE, ECONOMICS PROFESSOR, BOSTON COLLEGE, NEWTON MASSACHUSETTS
“This sounds similar to what S&P did in 2011. That S&P (downgrade) announcement was not well received by markets, and led to a budget sequester agreement…which led to a reduction in the deficit. Then Trump cut taxes (in his first term) so we backed out of the compromise.”
“The downgrade is a wake-up call for Republicans. They have got to come up with a credible budget agreement that puts the deficit on a downward trajectory.”
JAY HATFIELD, CEO, INFRASTRUCTURE CAPITAL ADVISORS, NEW YORK
"This news comes at a time when the markets are very vulnerable and so we are likely to see a reaction. I expect S&P to be down by nearly 100 points or so but expect it to stabilize later in the week. I suspect that all the tariff related announcement could have had also played a role in the downgrade, even if they don't say so."