The United States just lost its last perfect credit rating. Moody’s downgrades United States credit rating, due to rising government debt

Moody's Investors Service has downgraded the United States' sovereign credit rating from its highest level of Aaa to Aa1, marking the first time since 1919 that Moody's has taken such action.

This downgrade follows similar downgrades by Standard & Poor's in 2011 and Fitch in 2023, leaving the U.S. without a perfect credit rating from any of the three major agencies.

Reasons for the downgrade, Moody's cited several key factors in its decision:

• Escalating National Debt: The U.S. national debt has reached $36.2 trillion, approximately 124% of GDP, with projections indicating it could rise to 134% by 2035.
• Persistent Fiscal Deficits: Federal deficits are expected to widen from 6.4% of GDP in 2024 to 9% by 2035, driven by increased interest payments, rising entitlement spending, and relatively low revenue generation.
• Rising Interest Costs: Annual interest payments on the debt are projected to exceed $1 trillion, potentially consuming 30% of government revenue by 2035.
• Lack of Fiscal Reforms: Moody's expressed concern over the inability of successive administrations and Congress to implement measures to reverse the trend of large annual fiscal deficits and growing interest costs.

Despite these challenges, Moody's changed the U.S. outlook from "negative" to "stable," acknowledging the country's exceptional credit strengths, including the size, resilience, and dynamism of its economy, as well as the continued role of the U.S. dollar as the global reserve currency.

The immediate market reaction to the downgrade has been relatively muted. Major stock indices, such as the S&P 500, Dow Jones Industrial Average, and Nasdaq, have shown resilience, with recent gains attributed to easing U.S.-China trade tensions and renewed optimism in AI investments.

However, analysts caution that the downgrade could lead to higher borrowing costs and increased market volatility in the long term.

The downgrade has intensified political debates in Washington. President Trump's proposed tax and budget bill, which aims to extend the 2017 tax cuts, faced opposition from fiscal conservatives concerned about its potential to significantly increase the federal debt.

The bill failed a procedural vote in the House Budget Committee, highlighting divisions within the Republican Party over fiscal policy.

The White House criticized Moody's decision, attributing it to political bias and emphasizing efforts to address fiscal challenges through proposed spending cuts and reforms.

Moody's downgrade of the U.S. credit rating underscores growing concerns about the nation's fiscal situations, including rising debt levels and persistent deficits.

While the immediate market impact has been limited, the decision serves as a warning about the potential long-term implications of fiscal imbalances and the need of implementing sustainable economic policies.