Moody’s Cuts US Rating to Aa1, Cites Debt and Governance Issues

Moody’s Ratings downgraded the U.S. government’s top credit rating on Friday. It dropped the rating from Aaa to Aa1, ending the country’s long-standing position at the highest level.

Still, the agency acknowledged America’s strong economic fundamentals. Moody’s said the U.S. “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.”

Debt and Interest Costs Prompted the Downgrade

According to Moody’s, the downgrade happened because of a decade-long rise in debt and interest payments. These costs have now reached levels far higher than those of other top-rated countries.

Furthermore, Moody’s projected that the U.S. budget deficit will worsen. It expects the federal deficit to grow to 9% of GDP by 2035, up from 6.4% in 2024. This will likely result from rising interest payments, increased spending on entitlement programs, and relatively low government revenue.

As a result, the agency believes the federal debt burden will hit 134% of GDP by 2035. For comparison, it stood at 98% in 2024.

Trump’s Budget Plan Suffers a Setback

Meanwhile, the downgrade dealt a blow to Donald Trump. His main spending proposal failed to pass a key vote in Congress. Many Republican lawmakers opposed it, citing concerns over fiscal discipline.

Moreover, Moody’s noted that extending Trump’s 2017 tax cuts — a top goal of the Republican-led Congress — would increase the primary deficit by $4 trillion over the next decade. This figure excludes interest payments.

Moody’s Joins S&P and Fitch

Moody’s is now the third major agency to lower the U.S. rating. Earlier, S&P cut the U.S. credit rating in 2011 during President Obama’s first term. It pointed to weak plans for managing debt. Then, Fitch followed in 2023, warning about the steady decline in governance and fiscal policy.

Now, Moody’s echoes these concerns. It stated, “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”

Additionally, the agency said, “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

It warned that the U.S. is likely to perform worse than it has in the past — and worse than other high-rated countries.

Political Division Continues

On Friday, the U.S. House Budget Committee rejected a large Republican package of tax cuts and spending reductions. Notably, a few far-right Republicans joined Democrats to block the proposal. They demanded deeper cuts to Medicaid and to President Joe Biden’s clean energy tax incentives.

Therefore, the political divide remains a key obstacle to solving the budget crisis. Republicans resist tax increases. Democrats oppose cutting key social programs.

White House Responds

Shortly after the downgrade, the White House fired back. On X, communications director Steven Cheung criticized one of the report’s authors. He said the author was “an Obama advisor and (Hillary) Clinton donor who has been a Never Trumper since 2016.”

Cheung added, “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again.”