Moody's downgrade sparks political blame game as US loses final triple A credit rating
The fallout was immediate on Capitol Hill as news broke that the United States had lost its last remaining triple A credit rating. Inside budget committee rooms and party strategy sessions, frustration was mounting. Economists cautioned of rising borrowing costs. Politicians, meanwhile, were quick to shift the blame.Moody's Investors Service downgraded the United States from AAA to Aa1, citing long-term fiscal concerns and a growing inability to curb ballooning federal deficits. The decision ends more than a century of perfect credit standing for the world's largest economy. Moody's had maintained its AAA rating for the US since 1917.
Also read: Moody's strips U.S. government of top credit rating, citing Washington's failure to rein in debt
While the firm acknowledged America's enduring strengths, including its dynamic economy and the centrality of the US dollar as a global reserve currency, it pointed to a decade-long trend of worsening debt metrics. Federal debt is projected to climb from 98 per cent of gross domestic product (GDP) in 2024 to 134 per cent by 2035.
Political fallout escalates following Moody's decision
In Washington, the downgrade quickly became a political soccer. The White House released a sharply worded statement, turning its attention toward the current administration.
"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 timing of the downgrade only added to the tension. On the same day, President Donald Trump's landmark spending plan, dubbed his "big, beautiful bill" had failed to pass the House Budget Committee. Several Republicans broke ranks and voted against it, revealing deep fiscal divides even within the GOP.The political chaos underscored Moody's concern that successive US administrations have failed to implement effective long-term fiscal reforms, contributing to higher debt-servicing costs and elevated risks to the government's ability to repay debt.
Also read: U.S heading for default in 2025, potentially tanking the U.S. credit rating and sending shockwaves through global markets
Downgrade may mean higher borrowing costs for the US Moody's move places the US in the same credit category as countries like Austria and Finland. While still considered low-risk, the Aa1 rating is a step below the gold standard and could have meaningful implications for the cost of government borrowing and investor confidence.A lower credit rating typically signals greater risk of default, and can lead to higher interest rates on Treasury bonds. For a nation already grappling with rising debt-servicing costs, this could put even more strain on public finances.In 2023, Fitch Ratings had already downgraded the US, following Standard and Poor's downgrade in 2011. With Moody's move, the last symbol of unwavering confidence in the US government's ability to manage its debt has been shaken.
Economic headwinds mount as GDP contracts Adding to the pressure, new economic figures revealed that the US economy contracted by an annual rate of 0.3 per cent in the first quarter. The decline was attributed to reduced government spending and a spike in imports, as businesses scrambled to bring goods into the country ahead of proposed tariffs.The contraction comes on the heels of 2.4 per cent growth in the prior quarter, underscoring the fragile state of the recovery and complicating fiscal planning amid political deadlock.
Also read: Moody's sounds warning related to Donald Trump. Here's what credit rating agency claims As the US Treasury remained silent on Moody's decision, markets and policymakers alike are now left to weigh the long-term consequences of a credit downgrade that's as much about fiscal policy as it is about political dysfunction.
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