Moody's downgrades U.S. credit rating, citing rising government debt

Published: Friday, May 16, 2025 at 10:04 pm

Moody's Downgrades US Credit Rating, Signaling Debt Concerns

In a move that sent ripples through the financial world, Moody's Ratings downgraded the United States' credit rating on Friday, citing the nation's escalating government debt. This marks the final of the three major credit rating agencies to lower the US's rating, following similar actions by Standard & Poor's in 2011 and Fitch Ratings in 2023.

The downgrade, from the coveted Aaa rating to Aa1, underscores growing investor anxieties about the trajectory of US debt. Moody's pointed to a sustained increase in government debt and interest payment ratios over the past decade, reaching levels significantly higher than those of other similarly-rated countries. The agency specifically criticized the inability of successive administrations and Congresses to reach consensus on measures to curb large annual fiscal deficits and the associated rising interest costs.

Moody's forecasts that federal deficits will balloon from 6.4% of GDP in 2024 to a concerning 9% by 2035. This projected increase is fueled by rising interest payments on existing debt, escalating entitlement spending, and relatively weak revenue generation. The agency also highlighted the potential impact of extending the 2017 Tax Cuts and Jobs Act, estimating it could add a staggering $4 trillion to the federal primary deficit over the next decade. The Congressional Budget Office projects that federal debt held by the public will surge from 100% of GDP to 118% by 2035, surpassing the previous peak of 106% in 1946.

Despite the downgrade, Moody's maintained a stable outlook for the US, acknowledging the country's "exceptional credit strengths." These include the size, resilience, and dynamism of the US economy, as well as the continued dominance of the US dollar as a global reserve currency.

BNN's Perspective: While the downgrade is concerning, it's important to remember the US economy's inherent strengths. The long-term implications of rising debt are serious and require responsible fiscal management from both parties. Finding common ground on spending and revenue is crucial to maintaining investor confidence and ensuring the nation's financial stability. The stable outlook suggests that Moody's believes the US can navigate these challenges, but decisive action is needed to prevent further erosion of its creditworthiness.

Keywords: US credit rating downgrade, Moody's, government debt, fiscal deficits, interest payments, federal debt, GDP, economic outlook, credit rating agencies, US economy, tax cuts, Congressional Budget Office, debt to GDP ratio, financial markets, investor concerns

Full Coverage