Moody’s has downgraded the US sovereign credit rating from AAA to AA1, marking the first reduction since it began formally assessing US bonds in 1993.
The agency cited widening deficits, rising interest payments, and political paralysis as primary drivers, projecting federal debt to hit 134% of GDP and deficit-to-GDP of 9% by 2035.
The move aligns Moody’s with rivals Fitch and Standard & Poor’s, which downgraded the US in 2023 and 2011, respectively.
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The decision followed a 13% year-over-year increase in the fiscal deficit to $1.05 trillion for the current fiscal year, with Moody’s warning that extending Trump−era tax cuts could add $4 trillion to deficits over a decade.
READ: House GOP Tax Bill: Raises Debt Limit By $4T, Spares the Wealthy
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” the agency stated.
White House spokesperson Kush Desai accused Democrats of fueling “runaway inflation” and defended Republican efforts to pass deficit-reduction legislation, while Senate Minority Leader Chuck Schumer labeled GOP tax proposals “deficit-busting.”
The House Budget Committee rejected a key Trump-backed tax bill hours before the downgrade.
Moody’s warned that without “material multi-year reductions” in spending, deficits could reach 9% of GDP by 2035—far exceeding Treasury Secretary Scott Bessent’s 3% target.
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