US credit rating downgraded to Aa1 from Aaa due to growing debt and deficits

From Yahoo Finance: 2025-05-17 01:15:00

Moody’s Ratings lowered the US credit score to Aa1 from Aaa, citing ballooning debt and deficits as a concern. This move comes after successive administrations and Congress have allowed budget deficits to grow, with little sign of improvement. Lawmakers are working on a tax-and-spending bill expected to add trillions to the federal debt.

The White House criticized the decision as political, singling out an economist at Moody’s Analytics for being a long-time critic of the administration’s policies. Financial markets reacted swiftly, with Treasury yields rising and S&P 500 falling. Investors may demand higher yields on Treasuries, impacting the haven nature of Treasury and the US dollar.

The federal budget deficit is near $2 trillion annually, over 6% of GDP. The overall debt level has surpassed the size of the economy, with higher interest rates increasing the cost to service the debt. Lawmakers are advancing a tax package while the Joint Committee on Taxation estimated the bill could cost $3.8 trillion over the next decade.

The Congressional Budget Office warned the US is on track to surpass record debt levels by 2029, reaching 107% of GDP. Factors like the GOP tax cut and higher federal spending on entitlements contribute to the debt. Moody’s expects federal deficits to widen, driven by increased interest payments, entitlement spending, and low revenue generation.

The path to the Moody’s downgrade began in November 2023, when the agency lowered the US rating outlook to negative. Fitch Ratings had already downgraded the US in 2023, while S&P Global Ratings stripped the US of its AAA rating in 2011. The risk of a fiscal crisis is deemed low, though factors like rising Treasury yields could impact fiscal sustainability.



Read more at Yahoo Finance: US Loses Last Top Credit Rating With Downgrade From Moody’s