20 May | Dollar

Fed is cautious about US markets following credit rating downgrade

Fed is cautious about US markets following credit rating downgrade

On Monday, the Federal Reserve (Fed) officials expressed caution about the consequences of the US government's credit rating downgrade for the markets.

According to Reuters, the downgrade of the United States' sovereign rating is not an immediate concern for the Fed, but over time, the country's deteriorating financial situation will make credit increasingly expensive for borrowers and constrain economic activity. This, in turn, will influence future monetary policy of the regulator and its expectations regarding the long-term dynamics of the economy.

Atlanta Fed chief Raphael Bostic said the downgrade will affect “the cost of capital and a bunch of other things,” and that could have an impact on the economy. He estimates it will take three to six months for the full effect to manifest itself. As Bostic believes, this will be an important factor in determining people's willingness to invest in the US.

At the same time, New York Fed President John Williams, while acknowledging the existing problems in the US markets, still considers some fears to be exaggerated. According to him, investors “have viewed and continue to view” the US as a reliable investment destination.

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