The United States has officially lost its last perfect credit rating. On Friday, Moody’s, a leading credit rating agency, downgraded the U.S. credit rating from ‘AAA’ to ‘Aa1’. The move reflects deep concerns over the country’s growing difficulties in managing its rising debt and meeting future financial obligations.
This downgrade marks the end of a century-long streak for the U.S., which held a perfect credit rating since 1917. Moody’s cited persistent government deficits and mounting interest costs as key reasons behind the decision.
Moody’s Cites Growing Debt Risks for the U.S.
Moody’s noted that over the last decade, U.S. government debt and interest payments have surged beyond levels seen in similar high-rated countries. The agency warned this trend threatens long-term fiscal stability.
“The downgrade reflects the increase over more than a decade in government debt and interest payment ratios to levels significantly higher than similarly rated sovereigns,” Moody’s stated. The U.S. government’s growing financial burden signals increased risks for investors and creditors.
Other Credit Agencies Had Already Taken Similar Steps
Moody’s had remained the only major agency to maintain the top rating until now. Fitch Ratings lowered the U.S. rating in 2023, and S&P Global Ratings made a downgrade back in 2011. Moody’s previous warnings about fiscal deterioration in 2023 hinted at this eventual downgrade.
Political Response: White House Pushes Back on Moody’s Criticism
The White House responded strongly to Moody’s announcement, blaming previous administrations for the fiscal challenges. Officials questioned Moody’s credibility, accusing the agency of failing to sound alarms sooner.
“If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded,” said White House spokesman Kush Desai. The sharp response highlights rising political tensions as economic pressures mount.
Downgrade Raises Concerns About Borrowing Costs and Economic Stability
Lower credit ratings typically increase borrowing costs for governments and raise concerns about the risk of default. Investors view such downgrades as warning signs about a country’s financial health.
Moody’s acknowledged the U.S. retains several unique advantages. These include a large, diverse economy and the U.S. dollar’s role as the dominant global reserve currency. However, these factors no longer justify a flawless credit score.
Worsening Debt Outlook for the U.S. Economy
Looking ahead, Moody’s projects that U.S. federal debt will grow to about 134% of the country’s gross domestic product (GDP) by 2035. This would be a significant jump from 98% last year. GDP reflects the total value of goods and services produced and is a key measure of economic strength.
Economic Challenges Compound Fiscal Concerns
The downgrade coincides with other troubling economic news. The U.S. economy contracted by 0.3% in the first quarter of the year, reversing the previous quarter’s 2.4% growth. The Commerce Department linked this shrinkage to lower government spending and a surge in imports as companies prepared for upcoming tariffs.
Additionally, former President Donald Trump’s recent budget plan faced a setback when five Republicans opposed it in the House Budget Committee. This defeat further complicates efforts to address the country’s fiscal health.
This credit rating downgrade is a clear sign of the mounting fiscal pressure facing the United States. It underscores the urgent need for sustainable budget reforms and fiscal responsibility to maintain economic stability and investor confidence.