Moody’s quoted the rise in debt, saying we have failed to repeatedly end the massive fiscal deficit and interest trends of year.
Moody’s rating stripped the US government of its highest credit rating, citing successive governments that they were unable to stop the debt tide.
On Friday, Moody reduced his rating from the gold standard AAA to AA1. “All US administrations and Congress have not agreed to measures to reverse the trend in large annual fiscal deficits and interest growth,” he said, turning the US outlook from “negative” to “stable.”
However, the US added that “holds extraordinary credit strength, including the size of the economy, resilience, dynamism and the role of the US dollar as a global reserve currency.”
Moody’s is the last of three major rating agencies that will lower the federal government’s credit rating. Standard & Poor’s federal debt downgraded in 2011, and Fitch valuation continued in 2023.
“We expect the federal deficit to grow, reaching nearly 9% of the US economy by 2035, up from 6.4% in 2024, driven primarily by increased debt interest, increased eligibility spending and relatively low revenue generation,” Moody’s said in a statement.
Moody’s said President Donald Trump’s 2017 tax cuts, a Republican-controlled Congressional priority, would add $4 trillion to the federal primary deficit over the next decade.
White House Communications Director Stephen Chan responded to the downgrade via social media posts, bringing Moody economist Mark Zandy independently to criticize. He called Zandi a political opponent of Trump.
“No one takes his ‘analysis’ seriously. He proves wrong over and over again,” Chan said.
Stephen Moore, Trump’s former senior economic adviser and economist at the Heritage Foundation, called the move “outrageous.”
“If US-backed government bonds are not triple-A assets, what?” he told Reuters.
The Treasury Department did not immediately respond to a request for comment from Reuters news agency.
Concerns about a Bond Market Defeat
The grid-locked political system failed to tackle the enormous deficits that the US had accumulated. Republicans have refused to raise taxes, and Democrats are reluctant to cut spending.
On Friday, House Republicans failed to drive a major package of tax credits and spending cuts through the Budget Committee. A small group of right-right Republicans advocating for a sudden cut in Medicaid and President Joe Biden’s Green Energy Tax Credit, joined all Democrats who oppose it.
Since returning to the White House on January 20th, Trump has said he will balance his budget, and his Treasury Secretary Scott Bescent has repeatedly said the current administration is aiming to cut the costs of funding for the US government.
Trump’s attempts to cut spending through Elon Musk’s Bureau of Government Efficiency is far below his initial target. Attempts to raise revenue through tariffs have sparked trade wars, global slowdowns, and concerns that will shake up the market.
Without being checked, such worries could lead to a defeat in the bond market and hinder the administration’s ability to pursue its agenda.
The downgrade that came after the market approached will raise the yield on Treasury debt, and analysts said it could suspend investors when the market reopens due to regular trading on Monday.
“This is very surprising. It’s a big deal. The market didn’t expect this at all,” said Tom Di Galoma, managing director of fees and transactions at Mishler Financial in Utah.