Moody’s Ratings downgraded the U.S. government’s credit rating from Aaa to Aa1 due to the government’s failure to control rising debt.
Despite the credit downgrade, Moody’s acknowledged the exceptional strengths of the U.S. economy and the role of the U.S. dollar as a global reserve currency.
The big picture: This downgrade by Moody’s follows similar actions by other major rating agencies, with Standard & Poor’s downgrading federal debt in 2011 and Fitch Ratings following suit in 2023.
- The expectation of widening federal deficits, projected to reach nearly 9% of the U.S. economy by 2035, was cited as a key factor contributing to the credit downgrade.
- Moody’s attributed the increasing deficits to factors such as rising interest payments on debt, growing entitlement spending, and relatively low revenue generation.
Zoom in: The extension of President Donald Trump’s 2017 tax cuts, a priority for the Republican-controlled Congress, was forecasted by Moody’s to add $4 trillion to the federal primary deficit over the next decade, excluding interest payments.
- The gridlocked political system in the U.S. has been ineffective in addressing the country’s significant deficits, with Republicans opposing tax increases and Democrats showing reluctance to cut spending.
