Moody’s Downgrades US Credit Rating, Cites Rising Debt and Fiscal Challenges
Moody’s Ratings has downgraded the United States’ long-term credit rating by one notch from Aaa to Aa1, citing growing fiscal deficits, increasing debt levels, and rising interest payments. The move brings Moody’s in line with other major rating agencies Standard & Poor’s and Fitch which had previously lowered the US rating in 2011 and 2023, respectively.
The ratings agency said the downgrade reflects a decade-long increase in government debt and interest payment ratios, now significantly higher than those of similarly rated sovereigns. Moody’s noted that “successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”
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The US is currently running a $1.05 trillion fiscal deficit for the year that began October 1, up 13% from the previous year. Moody’s forecasts the federal deficit will widen to nearly 9% of GDP by 2035, driven by rising entitlement spending, interest payments, and relatively low revenue. Federal debt is expected to reach 134% of GDP by 2035, compared to 98% in 2024.
Following the announcement, yields on US Treasury bonds rose slightly, while US stock futures dipped. Market analysts noted the symbolic significance of the downgrade, suggesting it could reduce global investor demand for US assets.
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The move also comes amid political gridlock in Washington. On Friday, the GOP-led House Budget Committee rejected a major tax proposal that included extending the 2017 Tax Cuts and Jobs Act—an extension Moody’s projects could add $4 trillion to the primary deficit over the next decade.
The downgrade has sparked concern among investors, with many expecting downward pressure on bond prices and the US dollar, and upward momentum for gold in the short term.
Disclaimer: This post is for general informational purposes only. It does not constitute financial advice. Please consult a qualified professional before making financial decisions.
