Moody’s Ratings downgraded the United States’ top credit rating from Aaa to Aa1 on Friday. The agency blamed previous governments for failing to control the rising national debt.
US Economy Still Strong
Despite the downgrade, Moody’s highlighted the US’s strengths. It said, “the US retains exceptional credit strengths such as the size, resilience, and dynamism of its economy and the role of the US dollar as a global reserve currency.”
A Blow to President Trump’s Agenda
Moreover, the downgrade adds to US President Donald Trump’s challenges. His key spending bill recently failed in Congress. Many Republicans opposed it, demanding deeper budget cuts.
Rising Debt and Deficits
Moody’s explained its decision by pointing to the growing government debt and rising interest costs over the last decade. Therefore, the US now carries more debt than many similar countries.
Furthermore, Moody’s predicts federal deficits will increase to nearly 9% of GDP by 2035, up from 6.4% last year. This rise is mainly due to higher interest payments, increased entitlement spending, and low revenue growth.
As a result, Moody’s expects the federal debt to rise to 134% of GDP by 2035, compared to 98% last year.
Other Agencies Also Downgraded US Credit
Moody’s is the last of the three major rating agencies to lower the US credit score. Previously, Standard & Poor’s downgraded it in 2011, and Fitch Ratings followed in 2023.
Tax Cuts Add to Deficit Concerns
Additionally, Moody’s warned that extending Trump’s 2017 tax cuts will add about $4 trillion to the deficit over the next decade, excluding interest payments.
Political Deadlock Blocks Solutions
However, political leaders remain deadlocked. Republicans oppose tax increases, and Democrats resist spending cuts. Consequently, this gridlock prevents progress on reducing the deficit.
Recently, House Republicans tried to pass a bill with tax breaks and spending cuts. Yet, some hard-right Republicans joined Democrats to block it. They demand bigger Medicaid cuts and want to remove Biden’s green energy tax breaks.
White House Pushes Back
In response, the White House criticized Moody’s report. Communications director Steven Cheung called one report author “an Obama advisor and (Hillary) Clinton donor who has been a Never Trumper since 2016.” He added, “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again.”
Moody’s Warns of Fiscal Risks
Moody’s also said that US leaders have not made serious efforts to fix the debt problem. “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” it stated.
Moreover, Moody’s added, “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
Outlook: Fiscal Health to Worsen
Therefore, Moody’s warned that US fiscal health will likely worsen compared to its past and other highly rated countries.