The three major rating agencies, Moody's, announced on the 16th after the New York market closed that it downgraded the U.S. debt credit rating from the top-level Aaa to Aa1, and adjusted the rating outlook from negative to stable. It is understood that this is mainly due to the continuously expanding fiscal deficit and the Republican-controlled House of Representatives' failure to pass a large-scale tax cut and spending reduction plan.
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ToggleDowngrade Main Reason: Continuously Expanding Fiscal Deficit
Among the three major rating agencies, Standard & Poor's downgraded federal debt in 2011, and Fitch followed in 2023. After Moody's downgrade news was released, U.S. government bond prices fell, with the 10-year U.S. Treasury yield rising to 4.49%.
According to the report, Moody's stated in a statement: "We expect the federal deficit to expand, reaching nearly 9% by 2035, up from 6.4% in 2024, mainly due to increased debt interest payments, rising welfare expenses, and relatively low income generation." Continuing Trump's 2017 tax cut policy, which is a priority for the Republican-controlled Congress, will increase the federal primary deficit (excluding interest payments) by $4 trillion over the next decade.
The report points out that the current situation is that Republicans refuse to raise taxes, while Democrats are unwilling to cut spending. On Friday, the Republican-controlled House failed to pass a budget committee plan that included large-scale tax cuts and spending reductions. A small group of far-right Republican lawmakers insisted on more significant cuts to Medicaid and President Biden's green energy tax breaks, and joined all Democrats in opposing the plan.
Research Institution: Downgrade Has No Impact
As for the impact of the U.S. debt downgrade on the market, especially for Taiwan, which holds a large amount of U.S. debt, Bianco Research founder Jim Bianco pointed out on Twitter that in August 2011, Standard & Poor's was the first to downgrade the U.S. credit rating from AAA to AA+. This immediately caused chaos. The reason for the chaos was that many derivative contracts, loan agreements, and investment instructions prohibited the use of any non-AAA-rated securities. There were fears that government bonds would no longer be eligible collateral, potentially causing technical defaults for some.
After that, these contracts were rewritten for government securities, excluding credit rating qualifications. This is why when Fitch downgraded the U.S. rating to AA+ in August 2023, the U.S. became a split-rated AA+ country. This downgrade had almost no impact on the bond market. Technically, the U.S. overall credit rating did not change, as it was already a split rating of AA+ before, and now it is consistently rated AA+. He particularly emphasized that no one would take action on Monday because of this.
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U.S. President Trump recently made a strong response to Walmart's remarks about raising prices in response to tariff increases. He posted on the social media platform Truth Social, directly stating that Walmart and China should "swallow the tariffs" instead of passing the costs on to consumers. This verbal battle surrounding tariff policies and corporate pricing strategies has once again sparked widespread attention from the market and the public.
ToggleWalmart Warns of Price Pressure, Tariff Costs Difficult to Absorb
Walmart CFO John David Rainey said in a CNBC interview this week that the current price pressure is unprecedented, stating, "We have never seen price increases at this speed and magnitude, which makes the retail environment more challenging."
He pointed out that although tariffs on Chinese imported goods have been reduced from the originally announced levels, currently only 30% are being collected during the 90-day grace period, with imports from several other countries still facing 10% tariffs. This has created significant pressure for Walmart, which imports large quantities of electronics, toys, and agricultural products like avocados and bananas.
Trump: Don't Blame Tariffs, Absorb Costs Yourself
Trump immediately issued a statement on Truth Social, criticizing Walmart for using tariffs as a reason to raise prices. He wrote: "Walmart should stop using tariffs as an excuse to raise prices. Walmart and China should 'eat the tariffs' together and not make precious customers bear additional costs. I'm watching you, and so are the customers!"
This statement not only reflects Trump's insistence on the tariff policies of his administration but also highlights his view on whether large corporations should absorb policy costs.
Walmart Responds: We Are Trying to Keep Prices Low
In response to Trump's accusations, Walmart emphasized its consistent stance: "We have always been working to keep prices at the lowest level and will continue to do so as long as the retail profit structure allows."
Rainey added that the company is currently working with suppliers to share some costs and minimize the impact on consumers. He said, "Our goal is to make our prices more attractive than competitors, especially during a time when consumers are being cost-conscious."
Price Hike Wave Not Limited to Walmart, Tech and Auto Industries Also Impacted
Walmart is not the only company considering price increases due to tariffs. Microsoft announced earlier this month that it would raise the suggested retail prices for Xbox game consoles and some controllers; Mattel, while planning to move production lines out of China, still expects toy prices to rise; Ford has also warned of potential price adjustments for some vehicle models.
These corporate actions highlight the broad impact of tariff policies on import-oriented industries in the United States.
Market Reaction Calm, Walmart Stock Price Slightly Rises
Despite facing a mix of price increases and political pressure, Walmart maintains its annual sales forecast but has chosen not to predict second-quarter earnings and operating profits, citing the Trump administration's frequent changes to tariff policies, which create uncertainty.
By Friday's close, Walmart's stock price rose 2% to $98.24, indicating that investors still have some confidence in the company's ability to handle challenges.
More Retail Giants Will Respond This Week
With Walmart opening the discussion on tariff-related price increases, other major retailers like Target, Home Depot, and Lowe's will also release their financial reports next week, drawing attention to how they will assess the actual impact of tariffs on their operations.
While Trump's statements are forceful, whether companies can truly "eat the tariffs" in the face of real economic pressures is likely not something that can be decided by a single presidential statement.
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Cryptocurrency investments carry high risks, and prices may fluctuate dramatically. You may lose all of your principal. Please carefully assess the risks.
