Moody's Downgrades US Credit Rating by One Notch to 'Aa1' from Top Tier, Citing Rising Government Debt

All Three Major Credit Rating Agencies Downgrade
Outlook Revised from 'Negative' to 'Stable'

Moody's, the international credit rating agency, has downgraded the United States' sovereign credit rating from the highest grade of 'Aaa' to 'Aa1'.

On May 16 (local time), Moody's announced that it would lower the US sovereign credit rating (long-term issuer rating) by one notch from Aaa to Aa1. The rating outlook was revised from 'negative' to 'stable'.

In its report, Moody's stated, "Over the past decade, the US federal government debt has surged due to persistent fiscal deficits," adding, "While federal spending has increased, fiscal revenues have declined as a result of tax cut policies."

Moody's further explained, "As fiscal deficits and debt have risen and interest rates have increased, interest payments on government debt have also grown significantly."

Moody's estimated that the share of mandatory spending, including interest costs, in total fiscal expenditures will rise from about 73% in 2024 to about 78% in 2035. Moody's noted, "Without adjustments to taxation and spending, budgetary flexibility will remain limited."

However, Moody's revised the rating outlook to 'stable', stating that several strengths of the US economy could provide resilience against shocks.

Moody's said, "While the increase in tariffs may temporarily slow US economic growth, we do not expect long-term growth to be meaningfully affected," and added, "Additionally, the status of the US dollar as the world's key reserve currency provides substantial credit support to the country."

Previously, in November 2023, Moody's revised its outlook for the US sovereign credit rating from 'stable' to 'negative', signaling the possibility of a downgrade.

Until now, Moody's had been the only one among the three major international credit rating agencies to maintain the US credit rating at the highest level.

This is the first time in one year and nine months that all three major credit rating agencies have downgraded the US credit rating. Fitch downgraded the US sovereign credit rating from AAA to AA+ in August 2023. Standard & Poor's (S&P) also downgraded the US rating from AAA to AA+ in 2011.