Moody’s downgrades US credit rating amid debt surge

Moody’s Ratings has downgraded the United States’ credit rating from AAA to AA1, citing rising federal debt and successive administrations’ failure to address widening fiscal deficits.

The decision marks the final blow from the three major credit agencies, following similar actions by S&P in 2011 and Fitch in 2023.

The downgrade, announced after markets closed on Friday, immediately pushed Treasury yields higher and raised fears of bond market volatility when trading resumes Monday.

Moody’s warned US debt could hit 134% of GDP by 2035, up from 98% in 2024.

The agency also criticised the potential extension of the 2017 tax cuts—a priority of President Donald Trump and the Republican-controlled Congress—which it estimated could add $4 trillion to the deficit over the next decade.

The announcement came hours after House Republicans blocked Trump’s proposed tax reform bill over internal disputes on spending cuts.

Hardline conservatives demanded steeper reductions to Medicaid and climate-related tax incentives, stalling efforts to eliminate taxes on tips, overtime, and firearm silencers.

The package also aimed to boost defence and border security funding.

House Budget Committee Chairman Jodey Arrington vowed to reintroduce the bill during a rare Sunday session, expressing confidence in reaching a compromise.

However, critics warned the proposed spending cuts could strip healthcare from millions.

White House communications director Steven Cheung dismissed Moody’s decision, calling lead economist Mark Zandi biased.

Meanwhile, economists and market analysts warned of global ripple effects.

The downgrade underscores Washington’s ongoing political paralysis and intensifying fiscal pressure, complicating Trump’s pledge to balance the federal budget amid a $36.2 trillion national debt.