by Moody’s Downgrades U.S. Credit Rating, Citing Soaring Debt and Deficits
Moody’s Ratings has downgraded the U.S. government’s credit score from its highest level, dropping it one notch from Aaa to Aa1. This marks the last major credit agency to strip the U.S. of its top-tier rating, following similar moves by Fitch and Standard & Poor’s.
The downgrade was driven by concerns over the country’s rising debt and interest payments, which Moody’s says are “significantly higher than those of other highly rated nations.”
Why Did Moody’s Make the Move?
According to Moody’s, both Congress and past U.S. administrations have failed to implement long-term solutions to reduce massive annual budget deficits and growing interest costs. The agency warned that America’s fiscal health is likely to decline, not just compared to its own past performance, but also in relation to other top-rated countries.
This move follows Fitch’s downgrade in 2023 and S&P’s downgrade in 2011, underscoring a troubling trend in how the U.S. manages its finances.
Moody’s pointed to ballooning federal debt, driven by persistent government overspending and tax cuts that have lowered revenues. The agency highlighted a recent GOP tax proposal that could add an estimated $4 trillion to the federal deficit over the next decade. It also expressed doubts that the plan would significantly cut mandatory spending or narrow the deficit.
Looking ahead, the federal deficit is projected to grow from 6.4% of GDP in 2024 to 9% by 2035, fueled by increasing interest payments, higher entitlement costs, and sluggish revenue growth.
What’s the New Outlook?
Despite the downgrade, Moody’s upgraded its outlook on the U.S. credit rating from “negative” to “stable.” This reflects a belief that while risks remain, the country still benefits from strong credit fundamentals—like the size and strength of the U.S. economy and the continued dominance of the U.S. dollar in global markets.
Moody’s also acknowledged recent political uncertainty but said it expects the U.S. to maintain a strong record of effective monetary policy, largely thanks to the independence and credibility of the Federal Reserve.
What Does This Mean for Consumers?
While the downgrade itself may not immediately impact everyday Americans, it could have long-term effects. A lower credit rating might lead to higher interest rates on U.S. Treasury bonds, which increases the government’s borrowing costs—and that debt could eventually trickle down to consumers.
That’s because Treasury bond rates often influence borrowing costs for mortgages, car loans, and credit cards. So if rates go up, consumers may end up paying more over time.
Still, some experts say the downgrade is more of a symbolic warning than an immediate financial threat.
“There hasn’t been a major jump in Treasury yields since the announcement, and demand for U.S. debt remains strong,” said James Humphries, managing partner at Mindset Wealth Management in Indianapolis. “But if the government continues to spend aggressively without a real plan to manage the debt, borrowing costs could rise down the road—and that could reduce our financial flexibility.
