Personal Finance
What Moody’s downgrade of U.S. credit rating means for your money
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.
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.
“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 any time 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 on CNBC’s “Squawk Box” Monday 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 central bank’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 consumer loans could see higher rates
Some loans could see more direct impacts because their rates are tied to bond prices.
Since mortgage rates are largely tied to Treasury yields and the economy, “30-year mortgages are going to be most closely correlated, and longer-term rates are already moving higher,” Rehling said.
The average rate for a 30-year, fixed-rate mortgage was 6.92% as of May 16, while the 15-year, fixed-rate is 6.26%, according to Mortgage News Daily.
Although credit cards and auto loan rates more directly track the federal funds rate, the nation’s financial challenges also play a key role in the Federal Reserve’s stance on interest rates. “The fed funds rate is higher than it would be if the U.S. was in a better fiscal situation,” Rehling said.
Since December 2024, the overnight lending rate has been in a range between 4.25%-4.5%. As a result, the average credit card rate is currently 20.12%, down only slightly from a record 20.79% set last summer, according to Ted Rossman, a senior industry analyst at Bankrate.
Credit card rates tend to mirror Fed actions, so “higher for longer” would keep the average credit card rate around 20% through the rest of the year, Rossman said.
‘We’ve been through this before’
Before its downgrade, Moody’s was the last of the major credit rating agencies to have the U.S. at the highest possible rating.
Standard & Poor’s downgraded the nation’s credit rating in August 2011, and Fitch Ratings cut it in August 2023. “We’ve been through this before,” Rehling said.
Still, the move highlights the country’s fiscal challenges, Rehling said: “The U.S. still maintains its dominance as the safe haven economy of the world, but it puts some chinks in the armor.”
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