Moody’s strips US government of top credit rating | Debt News
Moody’s cited rising debt, saying US had repeatedly failed to end the trend of large annual fiscal deficits and interest.
Moody’s Ratings has stripped the United States government of its top credit rating, citing successive governments’ failure to stop a rising tide of debt.
On Friday, Moody’s lowered the rating from a gold-standard Aaa to Aa1. “Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” it said as it changed its outlook on the US to “stable” from “negative”.
But, it added, the US “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.”
Moody’s is the last of the three major rating agencies to lower the federal government’s credit rating. Standard & Poor’s downgraded federal debt in 2011, and Fitch Ratings followed in 2023.
In a statement, Moody’s said: “We expect federal deficits to widen, reaching nearly 9 percent of [the US economy] by 2035, up from 6.4 percent in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.’’
Extending President Donald Trump’s 2017 tax cuts, a priority of the Republican-controlled Congress, Moody’s said, would add $4 trillion over the next decade to the federal primary deficit, which does not include interest payments.
The White House adopted an aggressive tone towards Moody’s after the ratings agency downgraded the US credit rating.
White House communications director Steven Cheung reacted to the downgrade via a social media post, singling out Moody’s economist, Mark Zandi, for criticism. He called Zandi a political opponent of Trump.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung said.
A gridlocked political system has been unable to tackle the huge deficits accumulated by the US. Republicans reject tax increases, and Democrats are reluctant to cut spending.
On Friday, House Republicans failed to push a big package of tax breaks and spending cuts through the Budget Committee. A small group of hard-right Republican lawmakers, insisting on steeper cuts to Medicaid and President Joe Biden’s green energy tax breaks, joined all Democrats in opposing it, a rare political setback for the Republican president.
