Moody’s downgrades US credit rating amid fiscal concerns

By Al Mayadeen English
Source: Agencies
17 May 2025 12:57

The Trump administration has rejected Moody's move, accusing the agency of political bias and selective criticism.

Listen

US President Donald Trump speaks with reporters as he signs an executive order in the Oval Office of the White House, on Friday, May 9, 2025, in Washington (AP)

Moody’s Investors Service has downgraded the United States’ long-term issuer and senior unsecured ratings from AAA to Aa1, citing persistent fiscal challenges and rising debt levels. The agency also revised the country’s outlook from negative to stable.

“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s stated. The agency emphasized that the US fiscal trajectory continues to deteriorate, both "compared to its own past" and "compared to other highly-rated sovereigns."

Looking ahead, Moody’s projects the federal deficit will expand to nearly 9% of GDP by 2035, up from 6.4% in 2024. This growth is expected to be driven by increasing interest obligations, rising entitlement spending, and limited revenue expansion. The US debt-to-GDP ratio is also forecast to climb to 134% by 2035, a sharp increase from 98% in 2024.

Despite the downgrade, Moody’s noted that the long-term prospects of the US economy remain intact, even though near-term growth may slow.

Trump administration slams downgrade as politically motivated

The rating cut triggered swift backlash from President Donald Trump’s administration. White House spokesperson Kush Desai dismissed Moody’s decision as inconsistent and politically selective.

“If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded,” Desai told CBC News. He added that the Trump administration is committed to reversing the trend through aggressive fiscal reforms, including what he called “The One, Big, Beautiful Bill to get our house back in order.”

Communications Director Steven Cheung also questioned the impartiality of Moody’s chief economist, Mark Zandi.

“An Obama advisor and Clinton donor who has been a Never Trumper since 2016,” Cheung said. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again.”

Moody’s remains one of the world’s top credit rating agencies, and its assessments carry considerable weight in global financial markets. A downgrade can lead to increased borrowing costs for the government, affect investor confidence, and potentially influence monetary policy decisions.

While the agency acknowledged that US economic fundamentals remain strong, it warned that without structural reforms to entitlement programs and debt management, fiscal vulnerabilities could continue to grow in the long term.