The international credit rating agency Moody's announced on the 16th (local time) that it has downgraded the United States' national credit rating from the highest level of 'Aaa' to 'Aa1.' This step reflects chronic fiscal deficits and an increase in government debt, and the outlook for the downgraded rating has been assessed as 'stable.'
Moody's announcement came after the closure of the New York financial markets on the same day. As a result, the United States has now been stripped of its top rating by all three major international credit rating agencies, commonly referred to as the 'big three.' Previously, Standard & Poor's (S&P) downgraded the U.S. rating in 2011, and Fitch did so in 2023, lowering it to one level below the highest.
Earlier, Moody's had lowered its outlook for the 'Aaa' rating from 'stable' to 'negative' in November 2023, leaving the possibility of a downgrade open. After 1 year and 6 months, it has now decided to strip the highest rating.
Moody's explained in a press release on the same day that this reflects "a significant increase in government debt and interest payment ratios over a period of more than 10 years, reaching levels considerably higher than those of similarly rated countries."
It further noted, "The successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and increasing interest expenses, and we do not believe that current proposed fiscal measures will substantially reduce mandatory spending and deficits over the years."
It added, "We expect that greater fiscal deficits will arise due to stagnant government revenues and increased welfare expenditures over the next 10 years, leading to a sustained and large fiscal deficit that will further elevate the government's liability and interest burden. America's fiscal performance is likely to worsen compared to its past and other high-rated countries."
Moody's forecasted that the proportion of mandatory expenditures, including interest expenses, will rise from approximately 73% of total expenditures in 2024 to about 78% by 2035.
Additionally, presuming the extension of the tax cut legislation (Tax Cuts and Jobs Act) enacted during Donald Trump's first administration, it stated that "an additional fundamental fiscal deficit of about $4 trillion (excluding interest expenses) is expected over the next 10 years."
Moody's explained that the federal government's fiscal deficit is expected to expand from 6.4% of Gross Domestic Product (GDP) in 2024 to about 9% by 2035, mainly due to increasing interest expenses, rising welfare expenditures, and relatively low revenue generation. It projected that the federal government's liability ratio will increase from 98% of GDP in 2024 to approximately 134% by 2035.
Moody's explained that its assessment of the rating outlook as 'stable' reflects "the balance of risks at the 'Aa1' rating level."
Regarding President Trump's tariff policy, it commented, "There is a high possibility that the economy will slow down in the short term as it adapts to rising tariffs, but it will likely not have a significant impact on long-term growth."
Moody's stated, "The dollar's status as the world's dominant reserve currency provides significant credit support for the U.S., and despite the diversification of reserve assets by global central banks over the past 20 years, the dollar is expected to maintain its dominant reserve currency status for the foreseeable future."