Moody’s Ratings has downgraded the credit rating of the United States government from the top Aaa to Aa1, citing the failure of successive governments and Congress to address increasing debt. This move could potentially impede President Donald Trump’s efforts to reduce taxes and create ripples in global markets.
In their announcement on Friday, Moody’s stated that the US government has consistently struggled to address large annual fiscal deficits and growing interest costs. Despite this, they acknowledged the US’s exceptional credit strengths, such as the size, resilience, and dynamism of its economy, as well as the role of the US dollar as a global reserve currency. Moody’s is the last of the three major rating agencies to downgrade the federal government’s credit rating, following Standard & Poor’s in 2011 and Fitch Ratings in 2023.
Moody’s expects federal deficits to widen, reaching nearly 9% of the US economy by 2035, driven primarily by increased interest payments on debt, rising entitlement spending, and low revenue generation. They also mention that extending President Trump’s 2017 tax cuts, a priority of the Republican-controlled Congress, would add $4 trillion to the federal primary deficit over the next decade.
White House communications director Steven Cheung responded to the downgrade by criticizing Moody’s economist, Mark Zandi, calling him a political opponent of Trump. Stephen Moore, former senior economic advisor to Trump and an economist at Heritage Foundation, also expressed outrage at the move.
The downgrade highlights concerns about the gridlocked political system’s inability to address the huge deficits accumulated by the US. Republicans reject tax increases, while Democrats are reluctant to cut spending. The downgrade has the potential to trigger a bond market rout and hinder the administration’s ability to pursue its agenda.
As a result of the downgrade, yields on Treasury bonds increased, and analysts suggest that investors may exercise caution when markets reopen for regular trading on Monday.
Source: https://www.aljazeera.com/economy/2025/5/16/moodys-strips-us-government-of-top-credit-rating?traffic_source=rss
