The US was downgraded from Aaa, the highest rating, to Aa1. Some sovereigns with an Aaa ratings from Moody’s include the European Union, Canada, and Germany, while other Aa1 countries include Austria and Finland.
Moody’s was the last triple-A credit rating the US had after being previously downgraded by other major rating agencies. Fitch Ratings previously downgraded the US in 2023, while S&P Global Ratings did so in 2011.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in a statement, adding that it did not believe current fiscal policies under consideration would lead to reductions in spending or deficits.
“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” the statement continued. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”
Moody’s also changed its outlook for the US from negative to stable, citing “exceptional credit strengths” including its size, resilience, dynamism of the economy, and the US dollar‘s role as global reserve currency. It also cited institutional factors, including an independent Federal Reserve making monetary policies and the constitutional separation of powers.
“While these institutional arrangements can be tested at times, we expect them to remain strong and resilient,” the statement said.
President Donald Trump has pledged to lower the national debt, which is over $36 trillion.
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