Citing large and growing budget deficits and rising interest costs, Moody’s Analytics on Friday reduced its credit rating on U.S. government debt, eliminating the last top-ranked, triple-A rating for the nation’s debt among the three major credit agencies.
“Successive U.S. 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. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
The U.S. rating is now Aa1, one notch below the highest rating of Aaa, the same level as Austria and Finland, per The Wall Street Journal. Moody’s also said it considers the U.S. outlook to be “stable,” in part because to the continued effectiveness of the independent Federal Reserve.
The ratings agency expects budget deficits to grow, reaching nearly 9% of GDP in 10 years, up from 6.4% in 2024, “driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”
Moody’s follows the other major rating agencies in reducing its rating. Standard & Poor's downgraded its U.S. rating from AAA to AA+ in 2011, due to concerns about “the effectiveness, stability, and predictability of American policymaking and political institutions” during a time of “ongoing fiscal and economic challenges.” Fitch lowered its rating of U.S. debt from AAA to AA+ in 2023, citing concerns about the nation’s fiscal health and political administration.