The United States loses its last AAA rating as Moody’s cites rising deficits, unsustainable interest payments, and failure to curb long-term fiscal risks.
May 17, 2025: Washington, D.C.:
In a major blow to the United States’ economic credibility, credit rating agency Moody’s Investors Service on Friday downgraded the US government’s credit rating from Aaa to Aa1, citing the nation’s surging debt burden, widening fiscal deficits, and a lack of long-term policy solutions to rein in spending.
The downgrade strips the US of its last remaining top-tier credit rating among the three major global ratings agencies, echoing earlier downgrades by S&P in 2011 and Fitch in 2023.
Moody’s explained that the decision reflects “more than a decade” of increasing debt and interest burdens, projecting that US federal deficits will rise from 6.4% of GDP in 2024 to nearly 9% of GDP by 2035, primarily due to growing entitlement obligations, higher interest costs, and insufficient tax revenues.
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“The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns,” the agency stated.
Moody’s estimates the US debt-to-GDP ratio will surge to around 134% by 2035, up from 98% in 2024—raising alarms over long-term solvency and borrowing costs.
Political Gridlock Fuels Fiscal Concerns
The downgrade comes on the same day that President Donald Trump’s flagship $5 trillion tax-relief extension plan failed to clear a key vote in Congress. The bill, aimed at renewing his 2017 tax cuts, is partially funded through controversial cuts to Medicaid, impacting over 70 million low-income Americans. It faced stiff resistance from Republican fiscal conservatives.
Moody’s expressed skepticism about any meaningful reforms emerging, saying successive US administrations and Congress have failed to reach consensus on sustainable fiscal policies.
“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s added.
Despite the downgrade, Moody’s changed the US credit outlook from ‘negative’ to ‘stable’, highlighting strengths such as the size, resilience, and global dominance of the US economy and the US dollar’s role as the world’s reserve currency.
Global Impact and Historical Context
- S&P first downgraded the US in 2011, citing governance and debt risks during Barack Obama’s presidency.
- Fitch followed in 2023, warning of “steady deterioration in governance standards” over two decades.
- Now, with Moody’s move, all major rating agencies have aligned on the US’s downgraded fiscal outlook.
This downgrade may impact borrowing costs, investor confidence, and the political momentum behind future spending reforms—especially with a tight election year looming.
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US economy, Moody’s downgrade, AAA rating, US federal deficit, Donald Trump, US debt crisis, credit rating agencies, fiscal policy, Congress, Medicaid cuts, tax reform, global markets