NEW YORK – The United States has lost its final AAA credit rating from a major global ratings agency after Moody’s downgraded the country’s sovereign credit rating to ‘Aa1’ on Friday, citing mounting debt levels and chronic political stalemate over fiscal policy. The move, coming amid a failed vote on former President Donald Trump’s flagship spending bill, marks the latest blow to the narrative of sustained U.S. economic strength.
Moody’s is now the third major ratings agency to withdraw its highest rating from the U.S., following similar actions by Standard & Poor’s in 2011 and Fitch Ratings in 2023. With this downgrade, the U.S. no longer holds a top-tier credit rating from any of the “Big Three” global agencies.
In its announcement, Moody’s pointed to “a significant and persistent increase in the U.S. government’s debt burden” and projected that federal budget deficits will widen to nearly 9% of GDP by 2035, up from 6.4% in 2024. It forecasts U.S. government debt reaching 134% of GDP by 2035, a steep rise from the current 98%, driven largely by rising interest costs, entitlement spending, and relatively flat revenue growth.
“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 agency said. Moody’s added that it does not foresee “material multi-year reductions in mandatory spending and deficits” under current proposals being debated in Washington.
The downgrade coincided with a major legislative setback for the Trump-backed $5 trillion extension of his 2017 tax cuts, which failed to pass a key procedural vote in Congress due to opposition from several Republican lawmakers concerned about the bill’s fiscal impact. The proposal had been partially funded through deep cuts to Medicaid, the public healthcare program covering over 70 million low-income Americans.
Republican leaders reacted to Moody’s move by emphasizing the need for spending reforms. “This is a strong reminder that our nation’s fiscal house is not in order,” said Congressman French Hill, chair of the House Financial Services Committee. “House Republicans are committed to restoring fiscal stability.”
Democrats, however, blamed Republican fiscal strategies for exacerbating the situation. Brendan Boyle, ranking Democrat on the House Budget Committee, called the downgrade “a direct warning” and said, “The question is whether Republicans are ready to wake up to the damage they’re causing.”
The White House also pushed back. Trump campaign communications director Steven Cheung lashed out on X (formerly Twitter), singling out Moody’s Analytics chief economist Mark Zandi. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung posted.
Despite the downgrade, Moody’s revised the outlook on the U.S. rating from “negative” to “stable,” citing the country’s strong economic fundamentals, including the size and resilience of its economy and the enduring status of the U.S. dollar as the global reserve currency.
Still, the downgrade carries symbolic and potential financial implications. A lower sovereign rating can increase borrowing costs for the government, create volatility in financial markets, and trigger a broader reassessment of U.S. creditworthiness across the public and private sectors. Market watchers are now closely monitoring how lawmakers and investors react ahead of what is expected to be a contentious election year and budget cycle.
