Moody’s strips America of its last triple-A credit rating as debt burden surges

By Bloomberg Wire
Dallas Morning News

The U.S. was stripped of its last top-tier credit rating Friday after Moody’s Ratings downgraded the nation on an increase in government debt and a higher interest burden.

Moody’s lowered the U.S. 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 U.S. rating to negative. The credit assessor now has a stable outlook.

“While we recognize the U.S.’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s wrote in a statement.

Treasury futures slid to the day’s lows after the statement, pushing yields on the 10-year note as high as 4.49%. An exchange-traded fund tracking the S&P 500 fell more than 0.5% in post-market trading.

The move comes at a time when the federal budget deficit is running near $2 trillion a year, or more than 6% of gross domestic product. Congress and the Trump administration are negotiating a tax package that includes an extension of provisions in the 2017 Tax Cuts and Jobs Act, amid doubt over slowing the pace of spending.

A weaker U.S. economy in the wake of a global tariff war is set to increase the deficit as government spending typically rises when activity slows.

Higher interest rates over the past several years have also pushed up the cost to service the government’s debt. The overall debt level for the U.S. has surpassed the size of the economy in the wake of profligate borrowing since COVID.

In May, U.S. Treasury Secretary Scott Bessent told lawmakers that the U.S. 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.”

The Yale Budget Lab estimates the GOP draft tax plan would add $3.4 trillion to government debt over the next 10 years, and could cost as much as $5 trillion if temporary provisions in the measure — set to expire over the next several years — were extended through 2035. If those provisions became permanent, debt as a share of GDP would hit 200% by 2055, the group said Friday.

Path to downgrade

The Moody’s downgrade has been in the works since November 2023, when the agency lowered the U.S. rating outlook to negative from stable while affirming the nation’s rating at Aaa. Typically, such a change is followed with a rating action over the next 12 to 18 months.

The credit company is the last of three firms to ditch its top rating. Fitch Ratings downgraded the U.S. 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 U.S. of its AAA rating back in 2011 and was harshly critiqued by the U.S. Treasury at the time.