On Friday, May 16, Moody’s Ratings downgraded the United States’ credit rating from the highest level of Aaa to Aa1 due to the increasing fiscal burden the U.S. government is facing in a high-interest rate economic environment.
The international credit rating agency stated in a press release on Friday that the downgrade of the U.S. credit rating by one notch “reflects the increase of government debt and interest payment ratios to levels significantly higher than those of similar-rated sovereign countries over the past decade.”
Moody’s added, “Previous U.S. administrations and congresses have failed to reach consensus on measures to reverse the trend of soaring annual fiscal deficits and rising interest costs.”
Moody’s also pointed out the uncertainty in U.S. policies in recent times, partly attributed to the constantly changing trade policies of President Trump.
Moody’s is the last of the three major credit rating agencies to lower the U.S. credit rating. In August 2011, Standard and Poor’s downgraded the U.S. credit rating from AAA to AA+, and in August 2023, Fitch Ratings also lowered the U.S. credit rating from AAA to AA+.
According to Moody’s, due to “rising debt interest expenses, increasing welfare costs, and relatively low revenue,” it is projected that the U.S. federal deficit will increase from 6.4% of the Gross Domestic Product (GDP) in 2024 to 9% of GDP by 2035.
For many years, the U.S. federal government has been spending more than its income, and Moody’s predicts that this situation will continue.
At the same time, due to rising interest rates and increasing debt that needs financing, the interest costs of U.S. national debt are continuously rising, leading to a huge fiscal deficit for the country. The total fiscal deficit has reached $1.05 trillion so far this year, a 13% increase compared to the same period last year. However, the increase in tariff revenue last month has helped partially alleviate this imbalance.
As news of Moody’s downgrade of the U.S. credit rating emerged, the Republican-led U.S. House Budget Committee rejected President Trump’s comprehensive budget agenda on Friday, which included extending the 2017 tax cuts plan. The hardline Republicans opposing the plan believe that there should be more aggressive cuts in government budget.
Moody’s stated on Friday that if the extension of the 2017 Tax Cuts and Jobs Act is implemented, the federal baseline deficit over the next decade (excluding interest payments) would increase by $4 trillion.