Sunita Somvanshi
The United States lost its last perfect credit rating as Moody’s Investors Service lowered the nation’s rating to Aa1 from Aaa on May 16, 2025. The downgrade comes as federal debt reaches $36.2 trillion, with interest payments projected to exceed $1 trillion within the next few years.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s stated, citing a decade-long pattern of rising government debt and interest payment ratios.
Market Response and Political Reactions
Treasury securities fell and yields rose following the announcement. The White House quickly responded through spokesman Kush Desai: “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.”
Senate Democratic Leader Chuck Schumer countered: “Moody’s downgrade of the United States’ credit rating should be a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway.”
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Economic Projections and Expert Analysis
Moody’s projects federal deficits to expand to 9% of GDP by 2035, up from 6.4% in 2024. Federal debt could reach 134% of GDP by 2035, compared to 98% in 2024.
Stanford finance professor Darrell Duffie offered a stark assessment: “It basically adds to the evidence that the United States has too much debt… Congress is just going to have to discipline itself, either get more revenues or spend less.”
Former Trump advisor Stephen Moore criticized the decision: “Outrageous. Moody’s has now become a political arm of the Democratic Party. How is extending the Trump tax cut going to reduce the value of the bonds. If a US backed government bond isn’t triple A asset then what is?”
Market Expert Perspectives
Christopher Hodge, Chief US Economist at Natixis, noted: “Fiscal profligacy and irresponsible governance – including the perpetual debt ceiling standoffs – aren’t new and there will be a day of fiscal reckoning when Congress will have to reign in debt. But the US borrowing capacity is still unrivaled and potential revenue generation is unmatched.”
James Humphries of Mindset Wealth Management emphasized: “Treasury securities remain the most liquid and sought-after instruments in the global fixed-income market. But from a credit analyst’s perspective, the underlying fiscal dynamics are becoming harder to ignore.”
Legislative Context
The downgrade coincides with challenges facing Trump’s budget legislation. The One Big Beautiful Bill Act failed to clear the House Budget Committee, with Republican budget hawks joining Democrats in opposition. The proposed bill could add $2.5 trillion to federal deficits over the next decade, potentially reaching $3.3 trillion when including interest costs.
Historical Context
This marks a watershed moment in US credit history – Moody’s had maintained a perfect credit rating for the US since 1917. The country previously lost top ratings from S&P Global Ratings in 2011 and Fitch Ratings in 2023.
Despite the downgrade, Moody’s assigned a “stable” outlook, citing America’s “exceptional credit strengths such as the size, resilience and dynamism of its economy and the continued role of the U.S. dollar as global reserve currency.”
