The US was stripped of its last top credit rating by Moody’s Ratings, reflecting deepening concern that ballooning debt and deficits would damage the US’ standing as the pre-eminent destination for global capital and increase the government’s borrowing costs.
Moody’s lowered the US credit score to “Aa1” from “Aaa” on Friday, joining Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple-A position.
The one-notch cut comes more than a year after Moody’s changed its outlook on the US rating to “negative.” The credit assessor now has a “stable” outlook.
Photo: AFP
“While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s said in a statement.
Moody’s blamed successive administrations and the US Congress for swelling budget deficits that it said show little sign of abating.
On Friday, lawmakers in Washington continued to work toward a massive tax-and-spending bill that is expected to add trillions of US dollars to the federal debt over the coming years.
The White House on Friday cast the move as a political decision.
White House Communications Director Steven Cheung (張振熙) singled out Mark Zandi, an economist for Moody’s Analytics, in a post on X, calling him a long-time critic of the policies of US President Donald Trump’s administration.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung said.
Moody’s Ratings is a separate group from Moody’s Analytics. Zandi did not immediately reply to a request for comment on Friday evening.
The reaction in major financial markets was swift in response to the decision, with US Treasury yields on the 10-year note rising as high as 4.49 percent. An exchange-traded fund tracking the S&P 500 fell 0.6 percent in post-market trading.
The downgrade comes at a time when the US federal budget deficit is running near US$2 trillion a year, or more than 6 percent of GDP. A weaker US economy in the wake of a global tariff war is set to increase the deficit as government spending typically rises when activity slows.
That outlook comes as the overall debt level for the US has already surpassed the size of the economy in the wake of profligate borrowing since the COVID-19 pandemic. Higher interest rates over the past several years have also pushed up the cost to service the government’s debt.
This month, US Secretary of the Treasury Scott Bessent, who has pointed to 10-year yields as a key metric, told lawmakers that the US was on an unsustainable trajectory.
“The debt numbers are indeed scary,” and a crisis would involve “a sudden stop in the economy as credit would disappear,” he said. “I’m committed to that not happening.”
Moody’s expects “federal deficits to widen, reaching nearly 9 percent of GDP by 2035, up from 6.4 percent last year, driven mainly by increased interest payments on debt, rising entitlement spending and relatively low revenue generation.”
The ratings agency identified higher US Treasury yields as a factor hurting US fiscal sustainability. Yields between 4 percent and 5 percent are near levels that prevailed before 2007 and the global financial crisis.
Moody’s is the last of three firms to ditch its top rating. Fitch Ratings downgraded the US in August 2023 by one level to “AA+,” citing concerns about political wrangling over the debt ceiling that took the nation to the brink of a default.
S&P Global Ratings was the first major credit grader to strip the US of its “AAA” rating back in 2011 and was harshly criticized by the US Treasury at the time.
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