Moody’s Investors Service cut the United States’ credit rating on Friday, citing concerns over rising debt and political deadlock, dealing a blow to Donald Trump’s narrative of prosperity and economic strength.
The downgrade marks a significant step, as Moody’s was the last of the three major credit agencies to maintain a top-tier rating for the US.
The agency lowered the US sovereign credit rating by one notch from “Aaa” to “Aa1,” pointing to the government’s failure to manage its ballooning $36 trillion debt and rising interest costs. The move lowers America by one level on Moody’s 21-point rating scale.
Why Moody’s downgraded the US
Moody’s had held the US at its highest rating since 1919. But it had first raised alarms about US fiscal risks back in 2011, during that year’s debt ceiling crisis. While its rivals, Standard & Poor’s and Fitch, downgraded ratings in 2011 and 2023 respectively, Moody’s had until now maintained its top-tier “Aaa” rating.
The latest cut comes after the agency changed its outlook in 2023 due to larger-than-expected deficits and growing costs of borrowing.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in its announcement.
The firm noted that although the US continues to benefit from strengths like a large, resilient economy and the dollar’s dominance as the global reserve currency, those advantages are being overshadowed by growing fiscal risks.
However, the agency changed its outlook from “negative” to “stable,” signaling that it does not expect another downgrade in the near term—but warned that a sudden loss of market confidence or further deterioration in debt metrics could change that.
White House pushes back
The White House strongly criticised the downgrade. Communications Director Steven Cheung targeted Moody’s economist Mark Zandi on social media, dismissing him as politically biased.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung wrote.
Economists and lawmakers sound ‘wake-up call’ for Trump
“Moody’s downgrade of the United States’ credit rating should be a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway,” said Senate Democratic Leader Chuck Schumer, reported Reuters. “Sadly, I am not holding my breath.”
“They have got to come up with a credible budget agreement that puts the deficit on a downward trajectory,” said Brian Bethune, an economics professor at Boston College, reported the news agency.
Moody’s further noted that if the government returns to fiscal discipline — either by raising revenue or cutting spending — it could restore the top credit rating. On the other hand, a faster-than-expected decline in debt health or a sudden loss of confidence in the US dollar could lead to another downgrade.
However, the agency said that kind of scenario is unlikely for now, as there is no clear replacement for the dollar as the global reserve currency.
(With agency inputs)
