U.S. Loses Last Top Triple-A Credit Rating following Moody's Downgrade, Firs...

TMTPOST -- The United States on Friday lost its last top credit rating position from the Big Three agencies due to the failure to handle its growing public debt. For the first time in a century, the country didn’t boast any perfect credit rating granted by the world’s leading rating agencies.

Credit：Xinhua News Agency

Moody’s Ratings announced it lowered the U.S. rating by one-notch, from its highest grade Aaa to Aa1. This is Moody’s first stripping U.S. perfect rating for more than a century as it held its top grade for U.S. since 1917. Friday’s move marks Moody’s joined Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple A position. Fitch and S&P have cut their ratings for U.S. in 2023 and 2011, respectively.

The one-notch downgrade reflected “the increase over more than a decade in U.S. government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns”, Moody’s said in a statement. It believed the Trump administration’s economic agenda, especially tax cuts, will not reduce but widen federal budget deficits,thus weaken the country’s debt affordability and can not justify its highest rating position.

Moody’s expected if the 2017 Tax Cuts and Jobs Act is extended, which is its base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade. As the result, federal deficits are expected to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. And the federal debut burdern is anticipated to rise to about 134% of GDP by 2035, up from 98% in 2024.

Moreover, Moody’s noted despite high demand for US Treasury assets, higher Treasury yields since 2021 have contributed to a decline in debt affordability. Federal interest payments are likely to absorb around 30% of revenue by 2035, compared with about 18% in 2024, and the US general government interest burden, which takes into account federal, state and local debt, absorbed 12% of revenue in 2024, compared to 1.6% for Aaa-rated sovereigns, according to the agency.

Moody’s recognized the U.S. significant economic and financial strengths, but believed these no longer fully counterbalance the decline in fiscal metrics. It also took a shot at U.S. President Donald Trump’s tariffs. “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,” it said.

Moody’s in the meantime upgraded U.S. outlook from negative to stable, reflecting balanced risks as it retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency. “While recent months have been characterized by a degree of policy uncertainty, we expect that the US will continue its long history of very effective monetary policy led by an independent Federal Reserve,” said the credit assessor. Though policy has been less predictable in recent months, relative to what has typically been the case in the U.S. and other highly-rated sovereigns, it expected that monetary and macroeconomic policy effectiveness will remain very strong, preserving macroeconomic and financial stability through business cycles.

The White House later Friday criticized Moody’s lowering credit rating, suggesting such move resulted from its political preference.

“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 said. “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.”

Steven Cheung, Trump’s spokesperson, needled Mark Zandi, an economist for Moody’s Analytics, a separate group from Moody’s Ratings. He accused Zandi of criticizing the Trump administration’s policies for a long time. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung said.

Joe Lavorgna, former chief economist for the White House National Economic Council during Trump’s first term, called the timing of the announcement “just very strange” in an interview with Bloomberg on Friday. He said that on the revenue side, Moody’s assumptions were “too pessimistic” on growth, adding that“certainly the fiscal hawks will use this as a reason to be more careful on the outlook.”