The U.S. government lost its last triple-A credit rating from a major ratings firm on Friday, after Moody’s Ratings downgraded U.S. government debt to Aa1. According to the company’s own definition of these rankings, Aaa obligations are “judged to be of the highest quality, subject to the lowest level of credit risk,” while Aa ratings are “judged to be of high quality and are subject to very low credit risk.”
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the company said in a press release announcing the change. The statement further explained that the ratings agency does not believe that the current fiscal policies under consideration will have the effect of reducing deficits or multi-year mandatory spending, and that the U.S. government has “failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” regardless of which party controls the White House and Congress.
Moody’s was the last of the so-called “Big Three” credit rating agencies to downgrade US debt. Fitch knocked US debt down from its top rating in 2023, while S&P Global Ratings did so back in 2011.
Last year, Moody’s changed its outlook on the U.S. rating to “negative,” which was changed today to “stable.” Moody’s announcement was tempered with statements that reaffirmed the strength of the U.S. economy. “The U.S. retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the U.S. dollar as global reserve currency,” the press release reads. “In addition, while recent months have been characterized by a degree of policy uncertainty, we expect that the US will continue its long history of very effective monetary policy led by an independent Federal Reserve.”
The statement from Moody’s comes as the Trump administration and Republicans in Congress seek to pass a spending bill that would cut programs crucial for the wellbeing of the poorest segments of society, like Medicaid and food stamps, even as cuts to these programs would not even come close to covering the $3.8 trillion hole in the budget from making Trumps 2017 tax cuts permanent, as they intend.
