U.S. Fed officials urge caution after credit rating downgrade
By Rebecca Okine
Top U.S. Federal Reserve officials are urging caution as they assess the impact of the recent downgrade of the U.S. government’s credit rating and its potential effect on the economy.
On Monday, Fed Vice Chair Philip Jefferson said the central bank is treating the downgrade like any other piece of economic information, focusing on how it may influence their ability to achieve stable prices and employment. “We will put that downgrade in the same perspective that we do with all incoming information,” he said during a conference at the Federal Reserve Bank of Atlanta.
The downgrade came on Friday, when Moody’s Ratings lowered the U.S. government’s credit score by one notch. It cited growing concerns over rising interest payments and a national debt that continues to grow at an unsustainable pace. Moody’s was the last major ratings agency to cut the U.S. from its top-tier status.
While the downgrade doesn’t pose an immediate problem for the Fed, it could increase borrowing costs in the long term, making loans more expensive for both businesses and consumers. That, in turn, may slow down the economy and influence how the Fed sets interest rates.
Atlanta Fed President Raphael Bostic said the downgrade “could have a ripple through the economy,” affecting investment and lending. He added that it might take three to six months to understand the full impact. With rising government spending and a budget proposal that could increase debt further, officials are concerned the U.S. may be heading toward deeper financial strain.
