Moody’s has downgraded the United States‘ sovereign credit rating from the highest ”Aaa” to ”Aa1”, referring to concerns over the increasing national debt, which has now reached $36 trillion. The move ended America’s membership in the elite group of top-rated economies and followed earlier cuts announced by S&P and Fitch in previous years.

As per the statement released by Moody’s: ”We expect federal deficits to widen, reaching nearly 9% of (the U.S. economy) by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”

Moody’s mentioned that the decision was taken because of ‘’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 has also made changes in its outlook from ”negative” to ”stable”. 

White House reaction on Moody’s

The White House has shared a sharp reaction on Moody’s decision to lower the credit rating. In a social media post, White House communications director Steven Cheung directly slammed Moody’s economist Mark Zandi and blamed him of being politically biased against President Donald Trump. Cheung also dismissed Zandi’s views, mentioning that his analyses lack credibility.

Cheung stated in a post, ”His assessments are not taken seriously-he’s been proven wrong repeatedly.”

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Political deadlock deepens debt worries

Moody’s has also cautioned that continuing President Donald Trump’s 2017 tax cuts, that was a major aim for the Republican-led Congress, would raise the federal primary deficit by $4 trillion over the next ten years. This estimate excludes the interest payments on existing debt.

Efforts taken to control the growing deficit have blocked, mainly because of political deadlock. While Republicans has firmly opposed any tax hikes, Democrats are uncertain to reduce government spending.

On Friday, House Republicans faced a setback when their proposal to combine tax relief with spending cuts failed to clear the Budget Committee. A group of conservative Republicans had voted against the bill and has demanded deeper reductions in Medicaid and a rollback of Joe Biden’s clean energy tax incentives. All the Democratic members also joined the plan in rejecting it.

This development could affect US President Donald Trump’s economic plans, including measures taken to reduce government spending and tax cuts. Despite committing to balance the budget, his administration’s proposal hasn’t given reassurance to the investors. The failed initiatives taken for cost-cutting, such as through Elon Musk’s Department of Government Efficiency, and tariff-driven revenue efforts have raised concerns about a global economic slowdown.

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Tom Di Galoma of Mischler Financial stated to Reuters, ‘’This is a big-markets were not expecting it.’’

Stephen Moore, a former Trump adviser has slammed the downgrade as ”outrageous”, stating ”If a US-backed government bond isn’t triple-A then what it is?”, as quoted by Reuters. In a similar tone, White House communications director Steven Cheung also criticised Moody’s economist Mark Zandi, and called him a political opponent.

Democratic Senate leader Chuck Schumer stated that the downgrade should be considered as ”a wake-up call’’ and condemned Trump and the Republicans for pushing ‘’deficit-busting’’ tax breaks.

Moody’s also warned that current fiscal plans are unlikely to lessen deficits in the long run, predicting the federal debt could climb to 134% of GDP by 2035.

Experts stated that the downgrade announced after markets closed on Friday could increase US borrowing costs and disturb the global markets. 

(With inputs from Reuters)