Trump’s Miserable, Terrible, Horrible Day…May Every Day Get Worse And Worse For Him Until He Repents

But Not As Bad For America As Friday Was

"Let's Make A Deal" by Nancy Ohanian

Trump had a bad day yesterday— whining about Springsteen and Taylor Swift, then losing his shit over being defeated on his big beautiful bill, crying some more about the bribe from Qatar and finally flipping out over the Supreme Court not allowing him to deport whom ever he wants wherever he wants without due process. But he missed a couple of things that could well wind up less in the distraction column and more in the “uh oh” column— consumer sentiment has taken another nosedive and Moody’s just downgraded the U.S. credit rating. 

“U.S. consumers,” reported Jesse Pound, “are becoming increasingly worried that tariffs will lead to higher inflation, according to a University of Michigan survey released Friday. The index of consumer sentiment dropped to 50.8, down from 52.2 in April, in the preliminary reading for May. That is the second-lowest reading on record, behind June 2022. The outlook for price changes also moved in the wrong direction. Year-ahead inflation expectations rose to 7.3% from 6.5% last month, while long-term inflation expectations ticked up to 4.6% from 4.4%.”

Consumer price sentiment is heavily swayed by inflation perceptions, rising inflation denting consumer confidence and creating a negative view of the incumbent party. Historically, big drops in consumer sentiment hurt the incumbent party’s chances, especially in midterm elections.

Bad enough and then the news from Moody’s. Reuters reported that yesterday Moody’s “cut the U.S. credit rating by one notch, citing rising debt and interest payments that outpace those of similarly rated sovereigns, in a move that marks the end of an era as Moody's was the last major agency to maintain a triple-A rating for U.S. sovereign debt. The downgrade to ‘Aa1’ from ‘Aaa’ follows a change in the outlook on the sovereign in 2023 due to wider fiscal deficit and higher interest payments, and comes as the U.S. Congress debates tax and spending plans that could deepen the U.S. fiscal hole.”

Since his return to the White House on January 20, Trump, who has a sordid history of multiple bankruptcies, was given a wake-up call to “end his reckless pursuit of their deficit-busting tax giveaway,” according to Chuck Schumer. “Trump is pushing lawmakers in the Republican-controlled Congress to pass a bill extending the 2017 tax cuts that were his signature first-term legislative achievement, a move that nonpartisan analysts say will add trillions to the federal government's $36.2 trillion in debt. The downgrade came as the tax bill failed to clear a key procedural hurdle on Friday, as hardline Republicans demanding deeper spending cuts blocked the measure in a rare political setback for the Republican president in Congress. Moody's said the fiscal proposals under considerations were unlikely to lead to a sustained, multi-year reduction in deficits, and it estimated the federal debt burden would rise to about 134% of GDP by 2035, compared with 98% in 2024.”

Investors use credit ratings to assess the risk profile of companies and governments when they raise financing in debt capital markets. Generally, the lower a borrower's rating, the higher its financing costs.

"The downgrade of the US credit rating by Moody's is a continuation of a long trend of fiscal irresponsibility that will eventually lead to higher borrowing costs for the public and private sector in the United States," said Spencer Hakimian, chief executive at Tolou Capital Management, a hedge fund.

Long-dated Treasury yields— which rise when bond prices decline - could go higher on the back of the downgrade, said Hakimian, barring news on the economic front that could increase safe-haven demand for Treasuries.

The downgrade follows heightened uncertainty in U.S. financial markets as Trump's decision to impose tariffs on key trade partners has over the past few weeks sparked investor fears of higher price pressures and a sharp economic slowdown.

"This news comes at a time when the markets are very vulnerable and so we are likely to see a reaction," said Jay Hatfield, CEO at Infrastructure Capital Advisors.