Moody's Warns of Increased Financial Risks in the U.S. Under Trump Presidency

According to Moody's, the election of Donald Trump as President and the Republican Party's likelihood of controlling Congress have raised concerns about the financial health of the United States. The credit rating agency noted that Trump's economic policies, which include tax cuts and tariffs, could lead to higher growth but also increase inflation and budget deficits.

Earlier this week, there was a notable sell-off in government bonds following Trump's victory. This reaction is attributed to expectations that Trump's plans could be rapidly implemented with a Republican majority in both chambers of Congress. This scenario appears increasingly likely as of Friday.

In a note published on November 7, Moody's highlighted the potential for a deterioration in financial strength to negatively impact the U.S. sovereign credit profile. The agency pointed to Trump's advocated fiscal policies during the campaign and the changing composition of Congress as factors that raise risks to the country's financial stability.

Despite these concerns, Moody's continues to be the only major rating agency that maintains the highest triple-A credit rating for the U.S. government. However, the outlook for this rating was downgraded from "stable" to "negative" in November of last year. Moody's typically resolves such an outlook within 18 to 24 months, which could mean a return to stable or a downgrade in the rating.

The agency also indicated the potential for rapid policy changes with both legislative and executive branches under Republican control. Such changes could significantly impact various sectors, including manufacturing, technology, and retail, through sudden and sweeping regulations in tax, trade, immigration, and climate policies.