Moody's becomes final credit agency to downgrade U.S. debt rating

UPI

17-05-2025

Moody's Ratings downgraded U.S. debt, becoming the last of the three major credit rating agencies to move in that direction. File Photo by Pat Benic/UPI | License Photo
May 17 (UPI) -- Moody's Ratings downgraded U.S. debt, becoming the last of the three major credit rating agencies to move in that direction.
The New York-based agency downgraded government long-term issuer and senior unsecured ratings to Aa1 from Aaa this week, while also changing its outlook to negative from a previous rating of stable, Moody's said in a media release.
"This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns," Moody's said in the company's statement.
"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. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration."
Standard & Poor's in 2011 became the first of the three nationally recognized statistical rating organizations to lower its U.S. debt rating. It later accused the Justice Department of "retaliation" for filing a $5-billion lawsuit against the credit rating agency.
Fitch Ratings followed in 2021, dropping its American long-term foreign-currency issuer default rating from top-ranked AAA to AA+ amid a political battle over the U.S. debt ceiling. That move elicited then-Treasury Secretary Janet Yellen to blast the move at the time, calling it "unwarranted."
Moody's in 2023 signaled it could move in the same direction, putting U.S. banks on a negative watch list and warning of a 'mild' recession, and later that year lowering its outlook of U.S. debt.
The agency in November then warned of a potential downgrade.
"Over more than a decade, U.S. federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly," Moody's said in its statement this week.
"If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary deficit over the next decade. While we recognize the U.S.' significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics."
The White House attempted to shift the blame to former President Joe Biden's administration.
"The Trump administration and Republicans are focused on fixing Biden's mess by slashing the waste, fraud, and abuse in government and passing The One, Big, Beautiful Bill to get our house back in order," White House spokesperson Kush Desai told reporters Friday.
"If Moody's had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded."
Moody's said it does not expect further downgrades in the near future.
"The U.S. economy is unique among the sovereigns we rate. It combines very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth. While GDP growth is likely to slow in the short term as the economy adjusts to higher tariffs, we do not expect that the US' long-term growth will be significantly affected," the agency said in its statement.