From Yahoo Finance: 2025-06-02 10:59:00

Moody’s downgraded the US credit rating to AA1 from AAA, signaling a shift in the country’s fiscal outlook. Economist Ben Harris warns that rising interest rates and more debt could lead to a fiscal crisis, impacting the economy and investor confidence in US Treasury securities. The recent House reconciliation package includes tax cuts and a $4 trillion lift to the debt ceiling.

Harris cautions that if interest rates climb to 5% or higher, investors may shift towards buying more Treasurys, affecting the economy negatively. He highlights the potential for a fiscal crisis if the US takes on more debt, leading to default on Treasury securities, loss of faith in the Fed’s independence, or foreign central banks reducing their Treasury holdings.

Read more: Why a ‘decade of reckoning’ is coming to the bond market