Moody's Downgrades US Credit Rating to Aa1, Citing Rising Debt and Interest Payments

Hadisur Rahman, JadeTimes Staff   

H. Rahman is a Jadetimes news reporter covering the USA

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Image Source: J. David Ake/Getty Images

In a move that could have far-reaching implications for the US economy, Moody's Investors Service has downgraded the United States' credit rating from AAA to Aa1, citing the country's increasing government debt and interest payment ratios. The decision, announced on Friday, marks the first time the US has lost its perfect credit rating from Moody's, which had maintained its AAA rating since 1917.

The downgrade brings Moody's in line with the other two major credit rating agencies, Fitch Ratings and Standard & Poor's (S&P), which lowered their credit ratings for US debt in 2023 and 2011, respectively. The move is likely to rattle financial markets and push up interest rates, potentially creating an additional financial burden for Americans already struggling with tariffs and inflation.

According to Moody's, the decision to downgrade US debt was influenced by "the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns." The agency expects borrowing needs to continue to grow and weigh on the US economy as a whole.

The White House responded to the downgrade, with spokesperson Kush Desai stating that the Trump administration is focused on "fixing Biden's mess" by slashing waste, fraud, and abuse in government and passing the "One Big Beautiful Bill" to get the country's finances back in order. However, the Treasury Department did not immediately respond to requests for comment.

Moody's initially put the US on notice for a potential downgrade in November, citing recent events that exemplified America's extraordinary political divide, including the country's near-default last summer and the resulting ouster of House Speaker Kevin McCarthy.

Despite the downgrade, Moody's considers the US outlook "stable" due to the country's long history of effective monetary policy led by an independent Federal Reserve. However, President Trump has recently raised questions about whether he would continue to respect the central bank's independence, and has previously threatened to fire Chair Jerome Powell.

The Aa1 rating is still considered strong, and Moody's noted that America's system of governance, albeit challenged, gives the agency confidence that the US still deserves a near-perfect credit rating. The agency stated that increasing government revenue or reducing spending could restore the US's AAA rating.

However, it remains unclear whether the Trump administration's efforts to cut spending and reduce the deficit will be enough to change the country's borrowing needs. The US is approaching a summer deadline for when the country could default on its debt unless the borrowing limit is raised, according to Treasury Department estimates.

The downgrade is likely to have significant implications for Americans, as US debt has long been considered a safe haven for investors. A downgrade could cause US Treasury yields to rise, influencing all kinds of debt, from mortgage rates to contracts written around the world.

US Debt-to-GDP Ratio:Total US Debt/US GDP=28.4 trillion/22.6 trillion≈125.7

The US debt-to-GDP ratio has been increasing steadily over the past decade, and the downgrade is likely to put upward pressure on interest rates. As the US continues to grapple with its fiscal challenges, the implications of the downgrade will be closely watched by investors and policymakers around the world.