Moody’s downgrades U.S. credit rating, citing rising government debt
The recent downgrade of the U.S. credit rating by Moody’s Ratings has sparked concerns among investors regarding the government’s increasing debt. The credit rating agency lowered the rating from Aaa to Aa1, citing a significant rise in government debt and interest payment ratios over the past decade compared to similarly rated sovereigns. Moody’s pointed out the failure of successive U.S. administrations and Congress to implement measures to address the growing fiscal deficits and interest costs.
Moreover, Moody’s highlighted the uncertainty in policies driven by President Trump’s evolving trade priorities. This downgrade marks Moody’s as the last of the three major credit rating agencies to lower the U.S. government debt rating. Standard and Poor’s downgraded the U.S. from AAA to AA+ in August 2011, while Fitch Ratings followed suit in August 2023.
Moody’s forecasts federal deficits to increase from 6.4% of GDP in 2024 to 9% by 2035, driven by escalating interest payments on debt, rising entitlement spending, and relatively low revenue generation. In response to the downgrade, White House spokesperson Kush Desai criticized the Biden administration and congressional Democrats for excessive spending on COVID stimulus bills, leading to a surge in national debt, inflation, and interest rates.
The credit downgrade coincided with the House Budget Committee’s rejection of President Trump’s domestic policy bill, which aimed to extend tax cuts from his first term. If the 2017 Tax Cuts and Jobs Act is extended, it could add $4 trillion to the federal primary deficit over the next decade, as per Moody’s analysis.
Despite the debt downgrade, Moody’s revised its outlook on the U.S. from negative to stable, citing the country’s exceptional credit strengths such as its robust economy, the global reserve currency status of the U.S. dollar, and effective monetary policy led by the independent Federal Reserve. The Congressional Budget Office projects a rise in federal debt held by the public from 100% of GDP to 118% by 2035, surpassing the previous high of 106% in 1946.
In conclusion, the U.S. faces challenges in managing its growing debt levels and fiscal deficits, necessitating a concerted effort from policymakers to address these issues and safeguard the country’s financial stability.
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