Moody’s has joined the two other major rating agencies in determining that the US is no longer fit to hold a AAA credit score.
On Friday, Moody’s downgraded America’s credit rating from AAA to AA1 while changing the country’s outlook from negative to stable.
Moody’s attributes the downgrade to the United States’ soaring national debt and interest payment ratios that exceed those of other countries with the same credit rating.
“As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.
Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024. 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 (excluding interest payments) deficit over the next decade.
As a result, we expect federal deficits 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. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.”
Moody’s latest decision strips the United States of its final Triple-A credit rating. The downgrade follows earlier moves by other major agencies: in 2011, Standard & Poor’s (S&P) lowered the US’ rating from AAA to AA+ due to concerns over the government’s inability to address rising debt levels. And in 2023, Fitch followed suit, citing persistent budget deficits and political infighting as key drivers of its downgrade.
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