Moody downgrade US credit rating is the headline shaking global markets. On May 16, 2025, Moody’s Investors Service stripped the United States of its final perfect credit score, cutting the rating from Aaa to Aa1. This historic downgrade underscores deep concerns about America’s soaring debt, rising interest payments, and chronic political dysfunction.
Moody’s follows the lead of S&P (2011) and Fitch (2023), making this the first time in history that all three major agencies have rated U.S. credit below triple-A.
Why Did Moody Downgrade US Credit Rating?
Exploding Debt and Deficits
Moody’s decision centers on the U.S. government’s unsustainable fiscal path. Public debt now exceeds $36 trillion and is projected to hit 134% of GDP by 2035 if major policy shifts are not enacted.
Rising Interest Payments
Interest costs have overtaken defense spending and are on track to consume 30% of government revenues by 2035. Moody warns that ballooning interest payments will severely constrain fiscal flexibility.
Endless Deficit Spending
The federal deficit hit 6.4% of GDP in 2024—high for peacetime—and is projected to rise to nearly 9% of GDP within a decade.
Partisan Gridlock
Moody’s cited Washington’s ongoing political stalemate as a major risk factor. Lawmakers continue to kick the can down the road, failing to agree on reforms to taxes or entitlement spending.
Impact of the Moody Downgrade US Credit Rating
Costlier Borrowing
The downgrade may increase U.S. borrowing costs, potentially leading to higher interest rates for everything from mortgages to credit cards.
Market Volatility
While markets didn’t immediately panic, long-term investor confidence may erode. A lower credit rating can influence everything from Treasury demand to global economic sentiment.
Policy Pressure
With a presidential election approaching, the downgrade adds pressure on both parties to address fiscal issues—especially the future of the 2017 tax cuts, which Moody estimates could add $4 trillion to the deficit if extended.
Moody’s Mixed Outlook
Despite the downgrade, Moody’s changed its outlook from “negative” to “stable,” citing strong U.S. institutions, a robust economy, and effective monetary policy. But the agency warned: if no structural fiscal reforms are made, future downgrades could follow.
The Moody downgrade US credit rating should be a wake-up call for policymakers. With all major agencies now aligned in their skepticism, the message is clear: without serious action on debt and spending, America’s fiscal reputation will continue to deteriorate.