Moody’s Downgrades US Credit Rating

Moody’s announced on Friday that it has downgraded the credit rating of the United States due to a persistent fiscal deficit, which is expected to worsen in the future.

This downgrade shifts the US credit rating from AAA to AA1, marking one step down on Moody’s 21-notch scale. Interestingly, the company’s outlook for the US has changed from negative to stable.

Moody’s indicated that the downgrade “reflects a decade-plus increase in government debt-interest payment ratios at a significantly higher level than similarly rated sovereigns.”

The firm pointed out that “All US administrations and Congress have not agreed on measures to reverse the trend of large annual fiscal deficits and interest growth.” It also expressed skepticism that current fiscal proposals could lead to meaningful reductions in mandatory spending and deficits.

Public debt has surged to 156% of GDP, contributing to the expanding US budget deficit, while citizen debt is also rising sharply.

Moody’s noted that the lack of political will to improve the fiscal outlook and stabilize the deficit contributed to this decision. The agency believes the federal government’s financial prospects are deteriorating, especially with rising spending on entitlement programs like Medicare and Social Security, coupled with increasing interest rates.

They expect that government revenues will remain relatively flat over the next decade as spending on entitlements climbs.

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While Moody’s did lower the US credit rating, they also noted that the outlook has shifted to stable, indicating a “balanced risk” for the AA1 tier.

According to Moody’s, the US retains strong credit strength due to the size of its economy, its resilience, and the role of the US dollar as a global reserve currency. Despite recent policy uncertainties, they expect that the US will maintain its long history of effective monetary policy under the independent Federal Reserve.