Moody’s downgraded the United States’ credit rating from AAA to Aa1, citing concerns about the government’s escalating debt and persistent fiscal challenges.
The downgrade reflects a decade-long trend of rising government debt and interest payments, exceeding levels seen in similarly-rated nations. This marks the end of the US’s uninterrupted AAA rating from Moody’s, a status held since 1917.
A triple-A rating signifies the highest level of creditworthiness, indicating exceptional financial health and debt repayment capacity. The loss of this rating suggests increased risk of default and higher borrowing costs for the US government.
Moody’s had previously warned of the potential downgrade in 2023. This action follows similar downgrades from Fitch Ratings (2023) and S&P Global Ratings (2011).
Moody’s statement emphasizes that the US retains significant economic strengths, including its size, resilience, and the dollar’s role as the global reserve currency. However, the projected increase in federal debt to approximately 134% of GDP by 2035 from 98% last year fueled the decision.
The White House responded critically, accusing Moody’s of failing to adequately address what it termed “fiscal mismanagement” over the past four years. The statement implied a lack of objectivity in Moody’s assessment.
A lower credit rating typically leads to higher borrowing costs for the government. Moody’s projected federal debt to reach approximately 134% of GDP by 2035.
GDP, or Gross Domestic Product, measures the total economic activity within a country. The BBC has contacted the US Department of Treasury for comment.
The downgrade coincided with setbacks for a major spending bill in Congress and follows news of the US economy contracting by 0.3% in the first quarter of the year, a significant reversal from the previous quarter’s 2.4% growth.
This economic contraction, according to the Commerce Department, resulted from decreased government spending and increased imports, driven by pre-tariff stockpiling by businesses.