Moody’s Investors Service has downgraded the United States from its longtime Aaa status to Aa1, stripping the nation’s last premier credit rating by citing concerns over government debt and deficits.
This decision marks a critical moment for President Donald Trump’s economic story just as Congress faces setbacks regarding his prominent spending bill. The downgrade came alongside a lack of success for Trump’s substantial tax and spending proposal, hindered by Republican fiscal conservatives during a key vote.
Moody’s action follows the paths of S&P in 2011 and Fitch in 2023, positioning the U.S. without any triple-A ratings from major agencies.
Moody’s outlined that the downgrade is due to a significant rise over the past decade in government debt and interest payment ratios, both of which now exceed those of comparable sovereigns. They anticipate federal deficits to escalate to nearly 9% of the GDP by 2035, influenced by increasing interest expenses, entitlement spending, and stagnant revenue growth. Subsequently, US federal debt could climb to 134% of GDP by 2035, up from 98% the previous year.
In light of this, the White House has defended its fiscal policies. Campaign communications director Steven Cheung criticized Moody’s on the platform X, claiming the analysis is widely disregarded and often inaccurate.
Moody’s indicated the downgrade is a reflection of Washington’s ongoing struggle to effectively tackle structural fiscal problems, noting the continuous failure of successive US administrations and Congress to implement measures to reverse the trend of persistent large annual fiscal deficits and rising interest expenses. Moody’s added that they do not expect significant multi-year reductions in mandatory spending and deficits to emerge from the current fiscal proposals being evaluated.
While Moody’s adjusted their outlook from “negative” to “stable,” they cautioned that the country’s fiscal health is deteriorating in comparison not only to other highly-rated sovereigns but also in relation to its own historical performance.
