The United States has lost its last remaining perfect credit rating, as Moody’s, a leading credit ratings agency, expressed growing concerns regarding the government’s ability to manage its debt obligations. The agency has downgraded the US rating from ‘AAA’ to ‘Aa1’, highlighting that successive administrations have not adequately addressed the escalating deficits and interest payments.
A triple-A rating represents the highest level of creditworthiness, indicating that a nation is in robust financial health and possesses a strong capacity to fulfill its debt commitments. However, Moody’s had previously cautioned in 2023 that the US’s triple-A status was under threat. Notably, Fitch Ratings downgraded the country’s rating earlier this year, while S&P Global Ratings made a similar move back in 2011. Moody’s had maintained the top credit rating for the US since 1917.
Concerns over rising debt levels
“The downgrade 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 stated in its announcement. In response, the White House conveyed its intent to address the ongoing fiscal challenges, with a spokesperson taking aim at Moody’s credibility. “If Moody’s had any credibility,” remarked White House spokesman Kush Desai, “they would not have stayed silent as the fiscal disaster of the past four years unfolded.”
A reduced credit rating implies a higher likelihood of default on sovereign debt, which typically leads to increased borrowing costs for the country. Nonetheless, Moody’s emphasized that the US still possesses remarkable credit strengths, including its size, resilience, and the enduring status of the US dollar as the world’s primary reserve currency. The agency projects that federal debt will rise to approximately 134% of the gross domestic product (GDP) by 2035, compared to 98% last year. GDP serves as a measure of all economic activities conducted by businesses, governments, and individuals within the nation.
Economic challenges and political backdrop
The timing of the downgrade coincided with a setback for former President Trump’s significant spending bill, which failed to pass the House Budget Committee due to opposition from some Republican members. Furthermore, recent figures revealed that the US economy contracted during the first quarter of the year, as government expenditures decreased and imports surged. The Commerce Department reported that the economy shrank at an annual rate of 0.3%, marking a stark decline from a growth rate of 2.4% in the previous quarter. This economic downturn underscores the challenges facing the government amid rising debt and stalled legislative efforts.
The BBC has reached out to the US Department of Treasury for further comment regarding the rating downgrade and its implications.