Moody’s downgrades US credit rating from top level for first time amid fears over soaring debt
Oliver O'Connell,Andrew Feinberg and Eric Garcia
5 min read
The U.S. Capitol Building in Washington, D.C this week (REUTERS)
Moody’s has slashed the credit rating of the U.S., bringing it down a notch to Aa1 from the highest triple-A rating, over the government’s massive budget deficit and high interest rates.
With the move, Moody’s catches up with the other two major credit rating agencies, which both downgraded the U.S. some time ago.
Moody’s said in a statement that it did not see a real effort by the government to cut spending, and that it expected the nation’s fiscal performance to deteriorate compared with other highly developed economies.
It also noted that President Donald Trump’s tariffs will significantly hurt the nation's long-term growth, and that it expects the federal debt burden to rise to about 134 percent of GDP by 2035.
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s said in a statement.
The U.S. has a massive budget deficit of $1.05 trillion, year to date, which is 13 percent higher than a year ago. Interest costs for Treasury debt continue to climb due to higher rates and from having more debt to finance.
While the U.S. Congress, the branch of the federal government responsible for setting tax and spending levels, enacted balanced budgets for a four-year period at the turn of the century, it has run deficits each year since 2001.
But despite warnings from fiscal hawks that increasing deficit spending could have negative effects, Republicans in Congress have used their majorities to enact tax cuts that have starved the government of revenue – even as they’ve pushed for increased spending on defense and other priorities while making largely ineffective cuts to social services and health care expenditures.
Economic stimulus bills enacted during the Great Recession and Covid-19 pandemic, as well as the costs of two decades of war following the September 11, 2001 terror attacks on New York and Washington, have made it increasingly difficult for legislators to balance expenditures with tax revenues. The GOP has steadfastly refused to lend support to any bill that increases taxes on anyone for any reason.
Still, the U.S. continued to hold a top rating from all three credit rating agencies until 2011, when the Republican-controlled House initiated a standoff with the Democratic-controlled Senate and the Obama Administration that threatened a first-ever default on America’s sovereign debt.
That’s when Standard & Poor’s made the unprecedented decision to downgrade U.S. debt from an AAA rating to the next-highest level, AA+.
At the time, S&P cited the debt ceiling crisis in stating that the downgrade reflected their view that the “effectiveness, stability, and predictability of American policymaking and political institutions” had “ weakened at a time of ongoing fiscal and economic challenges.”
The agency said its outlook was based on how it viewed “the difficulties in bridging the gulf between the political parties over fiscal policy.” It added that “the political brinksmanship” of the GOP had shown “America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”
More than a decade later, Republicans attempted to use the country’s statutory debt ceiling as a weapon against another Democratic president, Joe Biden, leading to another standoff and another downgrade in the U.S. credit rating, by Fitch Ratings.
The agency cited a “steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters” that had “eroded confidence in fiscal management.”
Without a top-class credit rating, the U.S. government will have to pay higher interest rates when borrowing funds, which could make it harder for the government to meet its own needs without reducing expenditures or raising taxes.
The announcement that the third of three credit agencies had downgraded America’s debt from the highest rating possible came just hours after the House Budget Committee failed to advance the “One Big, Beautiful Bill” containing much of Trump’s legislative agenda.
The defeat likely does not mean an end for the bill, but rather will require Republicans to regroup and rewrite it to cater to conservative concerns about work requirements for Medicaid, rolling back renewable energy tax credits passed under Biden’s presidency and making deeper spending cuts.
Republicans hope to pass the bill — which would extend the 2017 Trump tax cuts, ramp up spending for immigration enforcement and energy exploration — via the process of reconciliation, which would allow them to sidestep a filibuster in the Senate as long as it relates to the budget.
White House Communications Director Steven Cheung responded to the downgrading by taking to X to attack the credit rating agency’s decision based on the fact that Moody’s chief economist, Mark Zandi, donated to Trump’s Democratic opponent during the 2016 election and was an outside adviser to President Barack Obama during his time in office, which coincided with the worst financial crisis since the Great Depression.
“Mark Zandi, the economist for Moody’s, is an Obama advisor and Clinton donor who has been a Never Trumper since 2016. Nobody takes his ’analysis’ seriously. He has been proven wrong time and time again,” Cheung said.
A White House spokesperson, Kush Desai, also sought to cast blame on the Biden administration, citing the Covid-era stimulus legislation passed during the first two years under Trump’s successor (and predecessor) and accusing Moody’s of having “stayed silent as the fiscal disaster of the past four years unfolded.”
The Trump administration’s spending, however, is already up over 6 percent during the same time period last year under Biden.
Trump spent some $200 billion in the first 100 days of his administration more than Biden did in the same time frame in 2024 – less than Elon Musk has claimed the Department of Government Efficiency saved by draconian cuts in federal jobs, services and contracts.
“The Trump administration and Republicans are focused on fixing Biden’s mess by slashing the waste, fraud, and abuse in government and passing the ‘One, Big, Beautiful Bill’ to get our house back in order,” he said.
