The US has lost its final triple-A credit rating from major agencies as of Friday. Moody’s made this announcement, pointing to increasing government debt levels as a key factor, which undermines Donald Trump’s narrative of economic strength and prosperity.
This downgrade from AAA to AA1 is another setback for the president, especially since his key spending bill faced significant opposition and failed to pass a crucial vote in Congress on the same day.
In explaining the rationale behind the downgrade, Moody’s noted that the US has seen a continual rise in government debt and interest payments, reaching levels much higher than comparable sovereigns.
Moody’s anticipates that the federal deficit could expand to nearly 9% of economic output by 2035, up from 6.4% last year, driven mainly by higher debt interest payments and growing eligibility expenditures, coupled with relatively low revenue generation.
Consequently, the federal debt is projected to reach about 134% of GDP by 2035, a significant increase from 98% the previous year.
This downgrade aligns with similar actions taken by S&P and Fitch, two other prominent US rating agencies.
S&P was the first to lower US ratings back in 2011 during Barack Obama’s presidency, citing the need for a sound debt management strategy to stabilize future debt dynamics.
A dozen years later, Fitch echoed these concerns, warning of a steady decline in governance standards over the last two decades, particularly regarding fiscal and debt issues.
Moody’s indicated that both the current administration and Congress have failed to implement measures to address the rising annual fiscal deficit and interest payments.
The agency remains skeptical that meaningful reductions in mandatory spending or deficits will arise from current fiscal proposals, suggesting a continued trend of larger deficits over the next decade.
Moody’s remarked that the US financial outlook could worsen compared to its historical performance and relative to other highly rated sovereigns.
This decision by Moody’s comes alongside ongoing struggles in Congress regarding Trump’s ambitious spending bill, which aims to revise the approximately $5 trillion tax system established in 2017, partially funded by cuts to the Medicaid program that supports low-income individuals.
Furthermore, on Friday, Moody’s adjusted its outlook from “negative” to “stable,” acknowledging that despite the issues surrounding US debt levels, the country still possesses strong credit fundamentals, including a robust economy, resilience, and the US dollar’s status as a global reserve currency.
