Moody’s Downgrades US Government’s Credit Rating

Moody’s ratings agency downgraded its previously top-notch rating of the U.S. government’s creditworthiness on Friday, citing “persistent, large fiscal deficits” that show no signs of slowing.

The downgrade, which places the U.S. government one notch below Moody’s top Aaa status, comes as lawmakers weigh a budget that would extend significant tax cuts and boost spending for years.  House Republicans were unable to pass a version of the budget that includes those provisions Friday morning.

Andrew Brenner, head of international fixed income at NatAlliance Securities, wrote in a note to clients that Moody’s may be “trying to send a message to Congress to get their act together.”

Moody’s said in a press release that it does not believe current discussions will yield “material multi-year reductions in mandatory spending and deficits.”

It projected U.S. debt will swell to 134% of the country’s GDP by 2035, up from 98% last year.

“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,” the ratings agency said, adding that “persistent, large fiscal deficits will drive the government’s debt and interest burden higher.”

It’s Not The First Downgrade Brought on By a Spending Spat

The rating mirrors past actions from Moody’s two largest competitors in the ratings business: S&P Global and Fitch. The three firms rate governments and corporations’ ability to repay debt to investors, and how well they fare helps determine how high an interest payment investors require for those debts.

Fitch’s downgrade came in 2023, when it cited a “high and growing” debt burden and “repeated debt limit standoffs.” S&P downgraded its rating of the U.S. in 2011 amid fights between Congress and President Barack Obama’s administration over raising the debt ceiling.

Moody’s said the U.S. government will lack “budget flexibility” if it doesn’t adjust its tax and spending policies. It projected mandatory spending on entitlements and interest payments will rise to 78% of total spending, up from 73% last year.

The government will add $4 trillion to its deficits over the next decade if it extends tax cuts from the first Trump administration, Moody’s said.

“We expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation,” the ratings agency said.

Despite Downgrade, US Outlook is ‘Stable’

The United States does have “significant economic and financial strengths,” the agency said, but those “no longer fully counterbalance the decline in fiscal metrics.”

The ratings agency said its outlook for the United States was “stable,” down from “negative,”  suggesting it may not take another action soon.

Recent months have been “characterized by a degree of policy uncertainty,” Moody’s said, with tariff policies and debt discussions playing a role. But the ratings agency said the country has strong institutions, with “long-standing checks and balances” that it expects “remain broadly unchanged.” It also cited a “long history of very effective monetary policy led by an independent Federal Reserve.”

“While these institutional arrangements can be tested at times, we expect them to remain strong and resilient,” the agency said.

Update, May 16, 2025: This article was updated to include additional information about the downgrade.