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Moody’s Ratings Service on Friday downgraded the credit rating of the United States, warning that rising interest payments, expanding federal debt, and a lack of meaningful fiscal reform pose long-term risks to the country’s creditworthiness.
The downgrade drops the U.S. one notch below Moody’s top-tier rating, reflecting growing concerns about the nation’s ability to manage its finances amid escalating political tensions and budget uncertainty.
“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 firm previously warned in November 2023 that the U.S. could lose its pristine AAA rating if long-term debt issues remained unaddressed. Friday’s action makes Moody’s the last of the three major credit agencies to strip the U.S. of its perfect rating, after Fitch and S&P made similar moves in previous years.
The decision comes as President Donald Trump and Republican lawmakers promote a bill to extend the 2017 tax cuts, while a coalition of hard-line conservatives demands tighter controls on federal spending to offset further deficit increases. On Friday, the House Budget Committee rejected a motion to advance the package, highlighting internal divisions.
The downgrade could mean higher borrowing costs for the U.S. government, as investors may now demand greater returns on Treasury bonds. That, in turn, could exacerbate the very fiscal pressures Moody’s is warning about.
“The downgrade was driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation,” Moody’s said.
The White House placed blame squarely on President Joe Biden and Democrats, accusing them of reckless spending that has contributed to higher inflation and interest rates.
“The Trump administration and Republicans are focused on fixing Biden’s mess by slashing the waste, fraud, and abuse in government and passing The One, Big, Beautiful Bill to get our house back in order,” said Kush Desai, a White House spokesperson.
Meanwhile, Democrats shot back. Senate Minority Leader Chuck Schumer called Moody’s move “a wake-up call” for Trump and Republicans, criticizing their “deficit-busting tax giveaway” that has ballooned the debt.
While Moody’s acknowledged that political dysfunction in Washington is a factor, the agency emphasized that the core issue is structural: persistent deficits, growing entitlement obligations, and an unwillingness by either party to pursue long-term fiscal consolidation.
Moody’s also warned that the downgrade could be revisited if policy progress stalls or interest costs grow faster than expected.
