Moody's downgrades US credit rating over rising debt concerns
What's the story
Moody's Ratings, a leading global credit rating agency, downgraded the credit rating for the US from AAA to AA1. The agency cited the government's failure to control its increasing debt levels as the reason behind the decision. However, despite the downgrade, Moody's noted that the US still has considerable credit strengths, including "the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency."
Credit history
Moody's follows S&P and Fitch in downgrading US credit
Moody's is the last of the three major rating agencies to downgrade the federal government's credit. Standard & Poor's (S&P) was the first to downgrade federal debt in 2011, followed by Fitch Ratings in 2023. This trend highlights a growing concern over the country's financial stability and ability to manage its debts effectively.
Future outlook
Widening of federal deficits by 2035
In its statement, Moody's projected that "federal deficits are expected to widen, reaching nearly 9% of (the US economy) by 2035, up from 6.4% in 2024." The increase is mainly due to higher interest payments on debt, rising entitlement spending, and relatively low revenue generation. The agency also warned that extending President Donald Trump's 2017 tax cuts could add $4 trillion over the next decade to the federal primary deficit.
Political challenges
Political gridlock hampers US deficit reduction efforts
The political gridlock in the US has largely stalled efforts to tackle the country's widening deficits. Republicans have always resisted tax hikes, while Democrats are reluctant to cut spending. This impasse was visible on Friday when House Republicans couldn't get a sizable package of tax breaks and spending cuts through the Budget Committee.