US loses last triple-A credit rating as Moody’s downgrades to Aa1

Moody's has cut its credit rating for the US in a setback for President Donald Trump. Photo / Getty Images

• Moody’s has downgraded its US credit rating from Aaa to Aa1, citing rising government debt levels.
• The downgrade coincided with Donald Trump’s spending bill failing a key vote in Congress.
• Moody’s expects US federal deficits to widen to nearly 9% of economic output by 2035.

The United States has lost its last triple-A credit rating from a major agency as Moody’s announced a downgrade, citing rising levels of government debt and dealing a blow to Donald Trump’s narrative of economic strength and prosperity.

Today’s downgrade to Aa1 from Aaa adds to the bad news for the US President, coming on the same day his flagship spending bill failed to pass a key vote in Congress due to opposition from several Republican fiscal hawks.

Explaining its decision, the ratings agency noted “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns”.

In its decision, Moody’s warned it expects federal deficits to widen to almost 9% of economic output by 2035, up from 6.4% last year, “driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation”.

As a result, it expects the federal debt burden to increase to “about” 134% of gross domestic product (GDP) by 2035, compared to 98% last year.

Moody’s expects US deficits to reach 9% of GDP by 2035, up from 6.4% last year. Photo / Getty Images

Moody’s decision to downgrade the United States from its top credit rating mirrors similar decisions by the two other major US ratings agencies, S&P and Fitch.

S&P was the first to cut its rating for the United States back in 2011, during Barack Obama’s first term in office, citing its concerns that a debt management plan “would be necessary to stabilise the Government’s medium-term debt dynamics”.

Twelve years later, Fitch followed suit, warning of “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters”.

Moody’s echoed its peers in its decision, noting in a statement that “successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs”.

“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” it added, flagging that it expected larger deficits to continue over the next decade.

“The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns,” Moody’s said.

The Moody’s decision comes after a tough fight in Congress to pass Trump’s much-touted “big, beautiful” spending bill, which aims to revamp and renew a roughly US$5 trillion ($8.5t) extension of his 2017 tax relief, paid for at least partially through deep cuts to the Medicaid health insurance programme that covers more than 70 million low-income people.

Today, the agency also changed its outlook from “negative” to “stable,” noting that despite the United States’ poor record in tackling rising government debt levels, the country “retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency”.

- Agence France-Presse