Moody's downgrades US credit rating over mounting debt concerns

Moody’s Investors Service has downgraded the United States’ long-standing sovereign credit rating, citing deepening worries over the country’s ballooning debt, now approaching $36 trillion. The agency reduced the rating by one notch from the highest possible “Aaa” to “Aa1”, shifting its outlook from “negative” to “stable”.

The downgrade, announced late on Friday, ends over a century of Moody’s assigning the US its top-tier credit rating, a status held since 1919. With this move, all three of the world’s leading credit rating agencies have now stripped the US of its pristine rating, following similar actions by Fitch Ratings in 2023 and Standard & Poor’s in 2011.

Moody’s stated that its decision follows years of political inaction on reining in fiscal deficits and rising interest costs. “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” the agency remarked.

In its assessment, Moody’s warned that proposals currently being discussed are unlikely to result in sustained deficit reductions. The agency forecasts that the US federal debt burden could rise to approximately 134 per cent of GDP by 2035, up from an estimated 98 per cent in 2024.

Since returning to office on 20 January, President Donald Trump has pledged to balance the federal budget. Treasury Secretary Scott Bessent has reiterated the administration’s aim to reduce government borrowing costs. However, analysts remain unconvinced, with limited progress seen in efforts to boost revenues or trim public spending.

Mark Zandi, the economist for Moody’s, is an Obama advisor and Clinton donor who has been a Never Trumper since 2016. Nobody takes his “analysis” seriously. He has been proven wrong time and time again. https://t.co/l1dUFM5BRY

— Steven Cheung (@StevenCheung47) May 16, 2025

The latest credit downgrade triggered a reaction in US financial markets. Treasury yields rose, with 2-year bonds climbing by 2 basis points to 3.993 per cent and peaking at 4.012 per cent. Benchmark 10-year yields, which had earlier dipped, reversed course to reach as high as 4.499 per cent.

The White House swiftly criticised the downgrade. Communications director Steven Cheung singled out Moody’s chief economist Mark Zandi, accusing him of harbouring political bias against President Trump. In a social media post, Cheung dismissed Zandi’s views, stating, “His assessments are not taken seriously — he’s been proven wrong repeatedly.”

Moody’s has further cautioned that an extension of the 2017 tax cuts, a key priority for the Republican-controlled Congress, would widen the primary federal deficit by $4 trillion over the next decade, excluding interest costs on existing debt.

Efforts to control the deficit have stalled amid entrenched political divides. Republicans continue to reject any form of tax increases, while Democrats remain hesitant to scale back public spending.

On Friday, a Republican proposal to pair tax relief with spending cuts failed to clear the Budget Committee, blocked by conservative opposition demanding deeper reductions in Medicaid and a reversal of President Joe Biden’s green energy tax incentives. Democratic lawmakers also voted unanimously against the measure.

The downgrade poses a challenge to President Trump’s broader economic agenda, including plans to curtail government expenditure and drive economic growth through tax policy.

Investor confidence has been dented, with concerns mounting over the administration’s stalled cost-cutting initiatives, including those linked to Elon Musk’s Department of Government Efficiency and the reliance on tariff-based revenues — both seen as potential risks to global economic stability.