Credit rating agency Moody’s downgraded the United States’ sovereign credit rating on Friday, citing concerns over the nation’s ballooning $36 trillion debt and the inability of successive administrations and lawmakers to rein in rising deficits and interest payments.
The agency lowered the U.S. rating by one notch from its long-standing top-tier “Aaa” rating to “Aa1”, marking the first downgrade by Moody’s since it began rating U.S. debt in 1919. The decision comes after Moody’s changed its outlook on the U.S. from stable to negative in 2023, flagging fiscal concerns and escalating borrowing costs.
Moody’s noted that both the White House and Congress have repeatedly failed to implement policies that would reverse the growing fiscal imbalance. Despite the downgrade, the agency shifted its outlook for the U.S. back to “stable”, reflecting its belief that while the fiscal trajectory is troubling, it is unlikely to worsen rapidly.
The downgrade could create new hurdles for President Donald Trump’s administration as it attempts to advance economic policies centred onn tax cuts and spending reform. Trump has pledged to balance the budget, and Treasury Secretary Scott Bessent has emphasised lowering federal borrowing costs. However, efforts to trim expenses and increase revenue—such as initiatives led by Elon Musk’s Department of Government Efficiency and expanded tariffs—have so far fallen short of expectations.
Friday’s downgrade came after markets closed, but analysts anticipate that Treasury yields could rise when trading resumes, potentially increasing borrowing costs for the government and consumers.
“This just adds to the mounting evidence that the U.S. debt situation is out of control,” said Stanford finance professor Darrell Duffie, a former member of Moody’s board. “Washington needs to make tough decisions—either raise revenue or cut spending.”
The news sparked immediate backlash from Trump allies. Stephen Moore, a former economic adviser and now a fellow at the Heritage Foundation, called the downgrade “outrageous”, questioning why U.S. government bonds wouldn’t still be considered the safest assets in the world. The White House also pushed back, with communications director Steven Cheung criticising Moody’s economist Mark Zandi, calling him a political adversary. Zandi, however, is affiliated with Moody’s Analytics—a separate entity from the credit ratings division—and declined to comment.
Meanwhile, the Trump administration’s push to extend the 2017 tax cuts hit a roadblock on Friday when hardline Republicans blocked the bill in Congress, demanding deeper spending reductions. The delay came just as Moody’s cited the proposed tax extensions as a key concern, warning they would further inflate deficits without delivering long-term fiscal improvements.
According to Moody’s projections, the U.S. debt could rise from 98% of GDP in 2024 to roughly 134% by 2035 if current trends continue.
Democratic leaders pointed to the downgrade as evidence of fiscal mismanagement. Senate Majority Leader Chuck Schumer said in a statement, “Moody’s downgrade should serve as a wake-up call to the Trump administration and Republicans to stop pursuing tax cuts that blow up the deficit. Unfortunately, I doubt they’ll listen.”
The downgrade comes just months after Fitch Ratings also cut the U.S. credit rating, citing concerns about government gridlock and chronic debt ceiling standoffs—echoing similar concerns that led Standard & Poor’s to strip the U.S. of its top rating in 2011.
Economists say the downgrade could lead to higher interest rates across the board and shake investor confidence.
“This is another warning sign that fiscal discipline is urgently needed,” said Brian Bethune, an economics professor at Boston College. “Without a credible long-term budget strategy, the U.S. risks further erosion of investor trust.”
Market strategists warned that the downgrade could rattle already fragile financial markets, particularly as recent U.S. tariff moves have stirred fears of inflation and an economic slowdown.
“This news hits when market sentiment is already shaky,” said Jay Hatfield, CEO of Infrastructure Capital Advisors. “We’re likely to see a reaction when markets open again.”
With global investors closely watching Washington’s next steps, the pressure is on for policymakers to offer a clear path forward on managing the nation’s growing fiscal burden.