Moody’s Downgrades US Credit Rating for First Time in Over a Century

The downgrade follows warnings from the Treasury Secretary about a potential default before summer’s end.

Moody’s has lowered the United States’ credit rating from its top-tier level, citing growing worries about the country’s ability to manage its debt. The agency had maintained the US’s highest possible sovereign credit rating since 1917.

This action aligns Moody’s with other major rating agencies. Fitch Ratings downgraded the US to AA+ from AAA in August of last year, and Standard & Poor’s made a similar move in August 2011.

The downgrade to Aa1 “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s explained in their Friday statement.

The agency pointed out that successive administrations and Congresses in the US have been unable to agree on measures to reverse the trend of large annual budget deficits and rising interest expenses.

However, Moody’s acknowledged that the US still possesses significant credit strengths, including its economic size, resilience, dynamism, and the US dollar’s status as the world’s primary reserve currency. 

Earlier in the month, Treasury Secretary Scott Bessent cautioned about a possible default occurring as early as August. He urged for either an increase or suspension of the debt ceiling—a legal limit on the federal government’s borrowing capacity—to prevent the government from running out of funds to cover its obligations.

The US reached its debt limit of $36.1 trillion in January, preventing the government from borrowing more to meet its obligations. According to official figures, the total federal debt has risen to $36.2 trillion. 

The Treasury has averted default by implementing “extraordinary measures,” primarily accounting techniques like temporarily halting contributions to federal employee retirement funds, to meet its financial obligations.

Under former President Joe Biden, the debt ceiling was raised on three occasions. Current President Donald Trump has advocated for the complete elimination of the debt ceiling, deeming it pointless if it is routinely raised. He has argued that the concept of a debt ceiling “doesn’t mean anything, except psychologically.”

In response to the downgrade, White House spokesperson Kush Desai stated on Friday that Moody’s “would not have stayed silent as the fiscal disaster of the past four years unfolded” if the agency “had any credibility.” He also asserted that the Trump administration is currently addressing the “mess” left by the previous administration.

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