Moody's Slaps US with Credit Downgrade, White House Lashes Back
A credit rating agency, Moody's, downgrades the United States' credit score from its highest ranking.
Credit rating agency Moody's has knocked the US off its pedestal, dropping its rating from a prestigious "Aaa" to a respectable "Aa1". In a bold move, the agency changed the outlook to "stable". The decision was made in the face of the US's worsening financial situation in comparison to the past, and other top-tier countries. Moody's pointed out that the nation's impressive economic and financial might may no longer be capable of compensating for the deteriorating fiscal indicators.
Politics - White House Blasts Moody'sSteven Cheung, the White House's communications director, didn't mince words in condemning Moody's. He took aim at economist Mark Zandi, described as a political adversary of US President Donald Trump, on social media. Cheung stated, "Nobody takes his 'analyses' seriously. He's been wrong again and again."
Moody's was the final of the three major US rating agencies to still bestow the US with the top-tier "Triple-A Rating". In 2011, Standard & Poor's downgraded the country, while Fitch followed suit in 2023. In November 2023, Moody's changed the US outlook from "stable" to "negative", foreshadowing a potential downgrade in the near future. Lower ratings can translate to higher borrowing costs for nations.
Economy - Moody's Expects Sluggish Growth from Tariffs, Nothing MoreIn their statement, Moody's noted that US governments and Congress have lacked agreement on measures to tackle the recurring issue of large annual budget deficits and rising interest costs. They projected the federal debt-to-GDP ratio to reach about 134 percent by 2035, compared to 98 percent in 2024. The rating agency felt that the current budget proposals wouldn't lead to noteworthy, long-term cuts in mandatory spending.
Concerning the contentious tariffs of President Donald Trump, Moody's predicted a temporary slowdown in the GDP growth rate. However, they stressed that the long-term growth of the US would not be significantly impacted. They also emphasized the US's strengths in terms of its economy's size, resilience, and dynamism, as well as the US dollar's role as a global reserve currency. Despite the political uncertainty of recent months, Moody's anticipates "that the US will continue its long history of very effective monetary policy under the leadership of an independent Federal Reserve".
- Rating Agencies
- Moody's
- USA
- Fiscal Policy
- Deficit
- Donald Trump
Enrichment Data:Moody's declared the US downgrade in May 2025, not 2023 as previously mentioned. I will provide additional details on the factors behind the downgrade and its possible outcomes:
Reasons for the Downgrade
- Rising Government Debt: Moody's highlighted the rising government debt and interest payment ratios, which were significantly higher than those of similarly rated sovereigns.
- Fiscal Deficits: Moody's pointed out the failure of successive administrations and Congress to agree on measures to reduce the trend of large annual fiscal deficits and escalating interest costs.
- Entitlement Spending and Revenue: The agency projected a deteriorating fiscal outlook due to projected increases in entitlement spending and relatively stagnant government revenue.
Consequences of the Downgrade
- Increased Borrowing Costs: The downgrade could drive up borrowing costs for the US government, leading investors to demand higher yields on US Treasury bonds.
- Market Impact: The immediate impact on markets was clear, with yields on US Treasury bonds spiking soon after the announcement.
- Economic Repercussions: The downgrade could send ripples through global markets and reduce investor confidence.
- Policy Implications: The downgrade served as a call to action for fiscal discipline, either through increased revenues or reduced spending.
- The ongoing challenge facing the US administration, as mentioned in the Moody's report, revolves around the formulation of a community policy that addresses the escalating fiscal deficits and rising government debt.
- In the realm of business and politics, Moody's stressed the importance of a comprehensive employment policy that not only addresses immediate fiscal concerns but also aims to reduce entitlement spending and bolster government revenue over the long term.
