What Downgraded Credit Rating Means For You
MINNEAPOLIS (WCCO) – It’s been two days since Standard and Poor’s announced its decision to strip the United States of its sterling credit rating. Now, many wonder what that means for consumers.
The credit rating agency lowered the nation’s AAA rating for the first time since granting it in 1917. Standard and Poor’s, commonly known as S&P, is one of three main credit agencies, while Moody’s Investor Service and Fitch have not elected to downgrade.
The speculation now is the possibility of seeing marginally higher interest rates. Economists explain a lower rating causes investors to demand a higher interest rate to reward them for the risk.
Ultimately, for consumers, it means borrowing costs across many different spectrums will rise.
WCCO-TV talked to a financial consultant who said there is no set way to tell exactly what will happen. Bruce Helmer with the Wealth Enhancement Group said this being the first downgrade since 1917 means there’s a lot of speculation.
Helmer also said the bad news comes at a bad time.
“After the market lost 669 points last week, and then Friday night we get this news,” Helmer said.
He said there’s reason to believe the timing was deliberate.
“To send the message to say ‘you guys need to get together and work together better.’ And in fact, in their verbiage, in their narrative that goes along with the rating, they as much as said that,” Helmer said.
So what does Washington’s wrist slap mean for everyday consumers? Right now the speculation is that because of the downgrade, consumers will be less attractive to global investors.
“[This] means we’ll have to raise our interest rate or pay them more to get them to buy our bonds. That has a ripple effect on consumers in that we pay more at the pump, for groceries, on our mortgages, on our credit card bills,” Helmer said.
Helmer is very careful to point out however, while that rise may happen relatively quickly, he believes it will be negligible.
“I don’t believe it will be that significant. I don’t believe long-term it’s anything to worry about,” said Helmer.
He said historically, when other countries have received a downgrade, they did not see a significant rise in their interest rates. He said add to that the fact the U.S. has had a top-tier credit rating for 70 years.
“Is the U.S. government and is the U.S. debt still a safe investment? I think most of the world is going to say ‘We still like the United States of America,'” Helmer said.
However, that’s not to say economists and analysts alike think the short-term could bring some unwelcomed surprises.
If interest rates go up and you already have a loan, your lender is not going to change the terms and conditions of that loan.
As far as whether the U.S. is at risk for more downgrades, Helmer said since the S&P assigned a “negative” outlook to the country’s long-term credit rating, there could be another downgrade in the next 12-18 months if there’s not improvement in reducing the country’s debt.