A US inflation rate of 3.2 percent may please macroeconomist Edin Mujakic. “There is good news on that front as inflation is falling again for the first time in four months.” This is certainly good news given the Federal Reserve’s interest rate decision. “You immediately saw a little celebration in the financial markets because the prospect of the Fed raising interest rates in December became somewhat smaller with this number.”
Worrying news USA: ‘Triple A status at risk’
Will US interest rates rise further?
That door remains open. But it’s about assessing how wide that door is open in financial markets. With these not-so-bad inflation numbers, that door is more likely to close entirely. Markets are happy with this.
Less good news America’s creditworthiness, in doubt?
The US still has a high credit rating with Moody’s, one of the big three. But there is such a thing as predicting the future. The outlook so far remains stable, in other words, the high AAA rating is not at risk. But what Moody’s has done now is to change the forecast from stable to negative. This is often an early warning that a high credit score will be taken away.
This is troubling news for Washington. Due to increased interest costs, the sustainability of US government debt is a growing problem. Additionally, you have the deepest political polarization in the country. Basically, if Democrats and Republicans look outside and see it’s raining, they disagree that it’s raining. They offer very little to each other.
Also Read | ‘Lower US debt levels are a sign of the times’
What exactly does Moody’s say?
They talk about the “increasing risk” that the US will weaken and that this will “no longer be offset by the country’s unique credit strength”. And then I think, that’s interesting. Because what is the country’s ‘unique borrowing power’? America is the only country that can print dollars so simply, indefinitely and with impunity. In theory, you never have to worry about the US national debt. Because if they have to pay for everything, they can always print dollars. It has long been a bulwark for the US, but Moody’s now says it no longer works so well. is intellectual. Because if you print a lot of money to pay off debt, you will pay off your debt, but the dollars that people receive will be worthless because so much has been printed.
What was the response to this report?
Markets behaved as if nothing had happened. Notably, Treasury Secretary Janet Yellen showed a sense of humor. She showed that she disagreed with Moody’s action, saying that it actually made no sense. Because, ‘Washington is fully committed to a stable and credible fiscal policy in the coming years’. Then I think, this is macro humor. Because the US Federal Bureau of Investigation recently issued a report on this, saying that US fiscal policy is ‘fundamentally unsustainable’.
But the US economy is growing, isn’t that positive?
Yes, but you have to remember two things. 1. The US economy has shown very good growth, but we have yet to see if it can be sustained. 2. Even if growth continues, if your national debt is growing faster than the economy is growing, you have a big problem. Because despite that huge growth, your debt expressed as a percentage is getting higher. Turning to Moody’s, shelf life is an issue. That’s why I’m surprised the markets haven’t responded. It’s true that the problem was already known, but it was a signal that the problems could get worse. Or to put it in football terms: as Ajax’s new board says, we are adjusting our aim to become champions to avoid relegation. This is something.
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