Moody's strips U.S. government of top credit rating, citing Washington's failure to rein in debt

Key Points

• Moody’s cut the U.S. credit rating from Aaa to Aa1, citing successive administrations' failure to rein in rising federal debt.
• The agency cautioned that U.S. federal deficits are projected to widen to nearly 9% of GDP by 2035, driven by higher interest payments, growing entitlement costs and relatively low revenue generation.
• Despite the downgrade, Moody’s highlighted the U.S. economy’s size, resilience and dynamism, as well as the dollar’s role as a global reserve currency.
• Partisan gridlock in Washington, with Republicans opposing tax hikes and Democrats resisting spending cuts, has blocked meaningful action on U.S. deficits.

WASHINGTON (AP) — Moody's Ratings stripped the U.S. government of its top credit rating Friday, citing successive governments' failure to stop a rising tide of debt.

Moody's lowered the rating from a gold-standard Aaa to Aa1 but said the United States "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.''

Moody's is the last of the three major rating agencies to lower the federal government's credit. Standard & Poor's downgraded federal debt in 2011 and Fitch Ratings followed in 2023.

In a statement, Moody's said: "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.''

Extending President Donald Trump's 2017 tax cuts, a priority of the Republican-controlled Congress, Moody's said, would add $4 trillion over the next decade to the federal primary deficit (which does not include interest payments).

A gridlocked political system has been unable to tackle America's huge deficits. Republicans reject tax increases, and Democrats are reluctant to cut spending.

On Friday, House Republicans failed to push a big package of tax breaks and spending cuts through the Budget Committee. A small group of hard-right Republican lawmakers, insisting on steeper cuts to Medicaid and President Joe Biden’s green energy tax breaks, joined all Democrats in opposing it.