Moody’s Downgrades US Credit Rating Amid Rising Debt
Moody’s Ratings has downgraded the United States’ sovereign credit rating from Aaa to Aa1, citing persistent fiscal deficits and the growing burden of government debt financing amid high interest rates. The decision, announced Friday, strips America of its last perfect credit rating from a major agency and brings Moody’s assessment in line with competitors Standard & Poor’s and Fitch Ratings, which downgraded U.S. debt in 2011 and 2023 respectively, according to CNBC.
This one-notch reduction on Moody’s 21-notch rating scale reflects concerns about America’s fiscal trajectory, with the agency warning that federal deficits are projected to widen to nearly 9% of GDP by 2035, driven primarily by increased interest payments, rising entitlement spending, and relatively low revenue generation.
Trending Headlines You Might Have Missed:
- The Rise of Meme Coins: How Internet Humor is Moving Markets
- Toilet Seats Keep Washing Up on Florida Shores—Why?
- ‘Everyone Hates Elon’ Goes Viral—Europe’s Boldest Protest Yet
End of Triple-A Era
The downgrade marks a significant milestone in U.S. financial history, as Moody’s had been the only major credit rating agency to maintain America’s top-tier Aaa rating. The agency has held the United States at this highest level since first formally rating U.S. bonds in 1993, though it had assigned the country a “country ceiling rating” of Aaa since 1949, according to CBS News.
Moody’s decision follows its November 2023 change in the United States’ outlook from stable to negative, a move that signaled potential future downgrade action. While the rating has now been reduced, Moody’s simultaneously adjusted its outlook from negative to stable, suggesting no imminent further downgrades. The stable outlook reflects the agency’s assessment that despite fiscal challenges, the United States “retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the continued role of the U.S. dollar as global reserve currency.”
Fiscal Projections Worsen
In its downgrade announcement, Moody’s cited projections that the federal debt burden will rise to approximately 134% of GDP by 2035, compared to 98% in 2024. The agency specifically highlighted concerns about the potential extension of the 2017 Tax Cuts and Jobs Act, which they consider their “base case” expectation, predicting that such an extension would “add around $4 trillion to the federal fiscal primary deficit over the next decade.”
These projections come as the U.S. is already running significant budget shortfalls. The fiscal deficit in the year beginning October 1 is currently at $1.05 trillion, 13% higher than the same period last year. This trend of increasing deficits, combined with higher interest rates that have raised the cost of servicing existing debt, creates what Moody’s describes as a challenging fiscal environment without obvious solutions.
Political Response
The downgrade triggered immediate political reactions along partisan lines. White House communications director Steven Cheung criticized Moody’s economist Mark Zandi on social media, calling him a political opponent of President Trump. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung posted on X, according to Reuters.
Senate Democratic Leader Chuck Schumer took a different approach, calling the downgrade “a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway.” This political finger-pointing comes as the GOP-led House Budget Committee on Friday rejected a sweeping tax cut package that formed a central part of President Trump’s economic agenda, including extensions of tax cuts first enacted in 2017.
Market Implications
Financial analysts suggest the downgrade could potentially increase borrowing costs for the U.S. government by raising the yield that investors demand to purchase Treasury securities. While the immediate market reaction remained muted in after-hours trading, some experts anticipate potential turbulence in the coming week.
“This will make next week interesting,” noted Fred Hickey, editor of The High-Tech Strategist newsletter, describing the Moody’s announcement as a “Friday afternoon bombshell.” He projected potential declines in bond values and the dollar, with corresponding increases in gold prices, as markets digest the implications of the United States’ diminished credit standing across all three major rating agencies.
Trending Headlines You Might Have Missed:
