Moody’s Investors Service has downgraded the United States’ long-standing “Aaa” credit rating to “Aa1”, marking the first time since 1917 that the U.S. has lost its perfect credit score from the agency. The decision reflects growing concerns about the country’s ballooning federal debt and persistent fiscal deficits, intensifying scrutiny on Washington’s ongoing political gridlock over budget reform.
In its report, Moody’s cited decades of failure by successive U.S. administrations and Congress to implement meaningful reforms to curb spending or raise revenue. The agency stated that it does not expect “material multi-year reductions in mandatory spending and deficits” based on current fiscal proposals.
“The U.S.’s fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns,” Moody’s noted.
White House Pushes Back Against Moody’s Downgrade
The Biden administration has strongly dismissed the credit rating downgrade, calling it symbolic and politically motivated. Treasury Secretary Scott Bessent told CNN he had “little regard” for the assessment, citing ongoing international investment interest as proof of the country’s strong economic fundamentals.
“Trillions of dollars are flowing into the U.S. economy thanks to President Trump’s Middle East tour,” Bessent said, framing it as a signal of investor confidence.
White House Press Secretary Karoline Leavitt also downplayed the downgrade, emphasizing that “the world has confidence in the United States of America and our economy.” Communications Director Steven Cheung went as far as to call Moody’s chief economist Mark Zandi a “Never Trumper,” accusing him of repeated inaccuracies.
Downgrade Echoes Earlier Cuts by Fitch and S&P
Moody’s decision places it in line with Fitch Ratings and Standard & Poor’s, which lowered the U.S. rating in 2023 and 2011, respectively. While Moody’s acknowledged the strength of the U.S. economy and the global reserve role of the U.S. dollar, it flagged the $36 trillion national debt and mounting interest costs as unsustainable.
“It is appropriate to downgrade U.S. debt, given the size of current deficits,” said William Gale of the Brookings Institution, criticizing the government’s apparent unwillingness to address long-term fiscal challenges.
Fiscal Policy and Reconciliation Bill Raise Alarms
At the heart of the controversy is a new Republican-backed reconciliation bill, which includes:
- A multitrillion-dollar debt ceiling increase
- Permanent extension of the 2017 Trump tax cuts
- Spending cuts seen as insufficient to balance the added debt burden
Moody’s warned that extending the 2017 Tax Cuts and Jobs Act could increase the primary federal deficit by $4 trillion over the next decade. Independent experts and budget watchdogs like the Committee for a Responsible Federal Budget (CRFB) estimate the current bill could raise the national debt by approximately $3.3 trillion.
“We should not pass any legislation that adds to the deficit until we fix our fiscal situation,” said CRFB President Maya MacGuineas.
Oxford Economics analyst John Canavan added that the U.S. still has the resources to manage its debt for now, but “the long-term outlook depends on politicians making difficult fiscal choices”—something that current proposals appear to avoid.
Key Takeaways:
- Moody’s downgrades U.S. credit rating to Aa1, ending a perfect rating streak since 1917.
- Ballooning federal debt and political inaction drive the downgrade.
- White House dismisses rating as symbolic and politically biased.
- 2017 tax cuts extension and new budget plan could increase deficits by up to $4 trillion.
- Experts warn of long-term risks if interest rates outpace economic growth.