Moody’s Downgrades US Government’s Top Credit Rating

Moody’s Investors Service has downgraded the United States government’s credit rating from its highest rating of Aaa to Aa1, marking a significant and surprising shift in the evaluation of the country’s financial health. This downgrade reflects Moody’s concerns about the continuous rise in the US national debt and the government’s repeated failure to address escalating fiscal deficits effectively. The move has the potential to complicate President Donald Trump’s agenda, particularly his efforts to implement further tax cuts, and it may also cause waves across global financial markets.

The downgrade, announced on a Friday, is notable as Moody’s is the last of the three major credit rating agencies to lower the federal government’s credit rating. Previously, Standard & Poor’s downgraded US federal debt in 2011, and Fitch Ratings followed suit in 2023. Moody’s adjustment also included a change in the country’s outlook from “negative” to “stable,” suggesting that while challenges remain, Moody’s does not currently expect further downgrades in the immediate future.

In its explanation, Moody’s highlighted that successive US administrations and Congress have failed to reach consensus on policy measures needed to reverse the ongoing trend of large annual fiscal deficits and increasing interest costs on the national debt. The agency forecasted that the federal deficit would continue to widen, growing to nearly 9 percent of the US economy by 2035, up from an estimated 6.4 percent in 2024. Key drivers of this worsening fiscal situation include rising interest payments on the national debt, increasing entitlement spending (such as Social Security and Medicare), and comparatively low revenue generation.

Moody’s also specifically pointed to the potential fiscal impact of extending the 2017 tax cuts initiated under President Trump, which remain a priority for the Republican-controlled Congress. According to Moody’s, prolonging these tax cuts could add an additional $4 trillion to the federal primary deficit over the next decade, not counting interest payments. This projection underlines the agency’s concern about fiscal discipline and long-term sustainability.

Despite the downgrade, Moody’s acknowledged the United States’ “exceptional credit strengths,” including the size and dynamism of its economy, the resilience of its financial system, and the critical role of the US dollar as the world’s primary reserve currency. These factors continue to support the country’s creditworthiness, even as fiscal challenges mount.

The downgrade triggered criticism from White House officials. Steven Cheung, the White House communications director, criticized Moody’s and singled out its economist Mark Zandi, accusing him of political bias against President Trump and dismissing his analysis as unreliable. Cheung claimed that Zandi’s forecasts have been repeatedly proven wrong.

Stephen Moore, a former senior economic adviser to President Trump and an economist at the conservative Heritage Foundation, described Moody’s downgrade as “outrageous.” He questioned the logic behind the rating change, arguing that if US government bonds — widely regarded as the safest investment — are not considered triple-A assets, then it is unclear what would qualify.

The US Department of the Treasury did not immediately respond to requests for comment from Reuters regarding the downgrade.

In summary, Moody’s downgrade of the US credit rating from Aaa to Aa1 underscores growing concerns about the country’s fiscal trajectory, driven by persistent deficits, growing debt servicing costs, and political disagreements over fiscal policy. While the US retains strong economic fundamentals and the dominant global currency, the downgrade highlights the risks associated with continuing fiscal imbalances and the challenge of ensuring long-term financial stability. The decision marks a critical moment in US fiscal policy and international financial markets, with significant implications for government borrowing costs, investor confidence, and global economic dynamics.