2025-05-17T02:11:57Z

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On Friday, Moody’s Investors Service made a significant move by downgrading the sovereign credit rating of the United States, highlighting escalating worries regarding the nation’s increasing debt burden, which now stands at a staggering $36 trillion. This decision marks a pivotal moment in U.S. financial history, as it reflects deeper economic concerns that policymakers have struggled to address.

Specifically, Moody’s has reduced the U.S. government’s long-standing credit rating from “Aaa” to “Aa1,” a one-notch downgrade. Additionally, the agency revised its outlook for the nation from “negative” to “stable.” Notably, this downgrade is particularly significant because Moody’s had maintained the United States’ top-tier “Aaa” rating since 1919, making it the last of the three major credit rating agencies to take this step.

The downgrade was anticipated following Moody’s previous actions in 2023, when it shifted its outlook to negative due to persistently high fiscal deficits and surging interest payments. In its announcement, Moody’s pointed out that “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.” This statement underscores the ongoing political stalemate regarding fiscal policy in the U.S.

Since resuming the presidency on January 20, President Donald Trump has publicly pledged to balance the federal budget, emphasizing a commitment to fiscal responsibility. Treasury Secretary Scott Bessent has also consistently highlighted the administration’s objective of reducing government borrowing costs. However, despite these pledges, efforts to enhance revenue streams and curtail spending have not yet succeeded in assuaging investor concerns, as reported by Reuters.

Moody’s further expressed skepticism about the effectiveness of fiscal proposals currently under discussion in Washington, indicating that they are unlikely to result in a sustained, multi-year reduction in deficits. The agency projects that the federal debt burden will escalate to approximately 134% of gross domestic product (GDP) by the year 2035, a significant increase from the estimated 98% in 2024. This alarming trajectory raises serious questions about the nation’s long-term fiscal health.

This downgrade follows a similar action taken by Fitch Ratings in August 2023, which also lowered the U.S. sovereign rating by one notch. Fitch cited expected fiscal deterioration and the risks associated with recurring last-minute negotiations over the debt ceiling as primary factors that could jeopardize the government’s ability to fulfill its financial obligations.

In the wake of Moody’s downgrade, U.S. markets reacted swiftly. The announcement came after market hours but still managed to influence trading. Yields on Treasury bonds experienced an upward spike, with yields on U.S. 2-year Treasuries rising by 2 basis points late on Friday, reaching 3.993%. They even peaked at 4.012% during trading. Similarly, yields on benchmark 10-year notes, which had previously shown a decline, reverted to an upward trend, climbing as high as 4.499%.

This series of events illustrates a turbulent moment for the United States as it grapples not only with its financial obligations but also with the implications of political inaction on economic stability. As investors and policymakers alike watch the unfolding scenario, the future of U.S. fiscal policy remains uncertain.