The U.S. government has officially lost its top-tier credit rating from Moody’s, marking a major blow to confidence in the country’s fiscal management.
On May 16, 2025, the credit rating agency downgraded the U.S. from its longstanding Aaa status to Aa1, citing rising debt, political dysfunction, and persistent budget deficits.
The move underscores growing alarm over the nation’s worsening financial position. According to Moody’s, “Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.” While the outlook on the rating was shifted from “negative” to “stable,” the downgrade sends a strong message: America’s economic resilience can’t mask its debt trajectory forever.
What Caused the Downgrade?
The U.S. deficit is projected to balloon from 6.4% of GDP in 2024 to nearly 9% by 2035, largely driven by rising interest payments on the national debt, increasing entitlement spending, and relatively weak revenue growth. Moody’s explicitly pointed to the extension of President Trump’s 2017 tax cuts as a major concern. If renewed, the cuts could add an estimated $4 trillion to the federal primary deficit over the next decade.
Moody’s also criticized the nation’s political gridlock, where Democrats resist spending cuts and Republicans refuse tax increases. A recent failure in the House Budget Committee to pass a large tax-and-cut package underscored this stalemate.
Notably, this makes Moody’s the third major rating agency to strip the U.S. of its pristine credit status. Standard & Poor’s led the way with a downgrade in 2011, followed by Fitch in 2023.
Trump’s Response
The downgrade comes at a politically sensitive time, with President Trump facing pressure to stabilize the economy while pushing for further tax relief. The White House quickly dismissed Moody’s analysis. Communications Director Steven Cheung lashed out at Moody’s economist Mark Zandi on social media, accusing him of bias and labeling the downgrade as politically motivated. “Nobody takes his analysis seriously,” Cheung wrote.
Stephen Moore, a former Trump economic adviser, called the move “outrageous,” adding, “If a U.S.-backed government bond isn’t a triple-A asset, then what is?”
Market Reaction
The announcement came after markets closed on Friday but is expected to cause turbulence when trading resumes. Yields on Treasury bonds rose immediately after the news broke, signaling investor unease. Analysts warned of broader implications for the bond market and the potential for increased borrowing costs for the government.
“This is big, markets were not expecting this at all,” said Tom di Galoma, managing director of rates trading at Mischler Financial.
Long-Term Implications
The downgrade could make it more expensive for the U.S. to borrow money, as investors demand higher interest rates to compensate for perceived risk. It may also weaken the U.S. dollar’s status over time as the world’s most trusted reserve currency, although Moody’s acknowledged that the dollar still gives the U.S. a unique financial advantage.
Meanwhile, Trump’s plan to reduce spending through Elon Musk’s Department of Government Efficiency has reportedly underperformed, and attempts to boost revenue via tariffs have raised fears of global economic fallout.
Bottom Line
Moody’s downgrade is more than a symbolic slap, it’s a warning shot about the unsustainable path of American debt. As political divisions deepen and interest payments climb, the once-unthinkable idea of a U.S. credit downgrade has now become a recurring reality.
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