Moody’s Investors Service has downgraded the United States’ credit rating from Aaa to Aa1, marking the loss of its last remaining top-tier credit rating. This decision follows earlier downgrades by S&P Global Ratings in 2011 and Fitch Ratings in 2023. Moody’s cited persistent failures by successive U.S. administrations to address growing federal debt and deficits, with interest payments now exceeding defense spending.
As of November 2024, as reported by BitKE, the U.S. national debt surpassed $36 trillion, reflecting a $2 trillion increase since the start of the year. This rapid accumulation of debt has raised concerns about the country’s fiscal sustainability and its ability to manage rising interest obligations. As of December 2024, the United States was spending 23% of government revenue to servicing its debt.
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The downgrade reflects concerns over the country’s expanding government debt and persistent budget deficits. Moody’s projects that federal debt will increase to around 134% of gross domestic product (GDP) by 2035, up from 98% last year. Interest payments and mandatory spending are expected to consume around 78% of total U.S. spending by 2035.
Despite the downgrade, Moody’s emphasized the continued strengths of the U.S. economy, including the dollar’s reserve currency status and a historically effective Federal Reserve. However, the downgrade may result in increased yields on government debt and higher borrowing costs for consumers.
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The downgrade coincided with the House Budget Committee’s failure to advance a major tax and spending bill, further signaling fiscal disarray. President Donald Trump’s recent fiscal proposal, dubbed the “Big Beautiful” bill – which sought to extend 2017 tax cuts and allocate $46.5 billion for border wall construction – was blocked by Republicans amid concerns that its provisions, including $5 trillion in tax cuts, would worsen the fiscal outlook.
Moody’s estimates that extending former President Donald Trump’s 2017 tax cuts, a Republican priority, would contribute an additional $4 trillion to the primary deficit over the next decade.
The U.S. national debt has now surpassed $36 trillion, placing the country at a AA+ credit rating, on par with nations like New Zealand and Finland, but below top-rated countries such as Canada, Australia, and Germany.
In emerging markets, concerns over debt affordability and constrained financing options have led to downgrades of sovereign credit ratings.
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For instance, Uganda’s sovereign credit rating was downgraded due to high debt levels and limited financing options, although the outlook remains stable.
This downgrade of the U.S. credit rating underscores the importance of fiscal responsibility and the potential global implications of rising debt levels.
