Moody’s Ratings on Friday downgraded the United States government’s credit rating from the highest Aaa to Aa1, attributing the move to a persistent failure across successive administrations to rein in escalating government debt levels.
Trump Faces Setback as Downgrade
The downgrade coincided with a significant political blow to former President Donald Trump. His primary spending legislation failed to clear a key congressional hurdle due to resistance from fiscally conservative Republicans. This development directly undermines Trump’s long-standing narrative about economic strength and fiscal success, according to an AFP report.
White House Hits Back at Moody’s Analyst
In response, the White House took to X, formerly Twitter, where communications director Steven Cheung sharply criticised Moody’s Analytics’ chief economist, Mark Zandi.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung posted.
Moody’s Becomes Final Major Agency to Downgrade US
Among the top three global credit rating agencies, Moody’s is the last to downgrade the US federal government’s credit rating. Standard & Poor’s had done so in 2011, and Fitch Ratings followed suit earlier in 2023.
Despite the downgrade, Moody’s acknowledged several credit strengths still held by the US, including “the size, resilience and dynamism of its economy and the role of the U.S. dollar as global reserve currency.”
Federal Deficit Projected to Reach 9% of GDP by 2035
The agency highlighted projections showing the federal deficit expanding to approximately 9% of the GDP by 2035, up from 6.4% in 2024. The projected increase stems from growing interest payments on debt, rising entitlement spending, and inadequate revenue generation.
Trump-Era Tax Cuts Blamed for Worsening Deficit
Moody’s specifically noted that extending the 2017 tax cuts introduced under President Trump, which continue to have strong Republican backing, would add an estimated $4 trillion to the federal primary deficit over the next decade, excluding interest payments.
Partisan Divide Hinders Fiscal Reform
The US political landscape remains deeply divided. Republicans have firmly opposed tax hikes, while Democrats have resisted significant spending cuts, stalling any progress toward addressing the growing deficit.
GOP Suffers Blow in Budget Committee Vote
On Friday, House Republicans faced a legislative defeat when they failed to pass a major tax and spending package through the Budget Committee. Several conservative GOP members opposed the plan due to insufficient cuts to Medicaid and to President Biden’s environmental tax credits, joining Democrats to block the bill.
