Moody’s Ratings downgraded the United States’ credit rating from “Aaa” to “Aa1” on Friday, May 16, 2025. The decision strips America of its last top-tier credit rating among major agencies.

Moody’s cited persistent fiscal deficits and mounting debt burdens as key factors behind the downgrade.

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits,” Moody’s stated in its announcement.

The agency projects federal debt will surge from 98% of GDP in 2024 to approximately 134% by 2035.

This historic downgrade comes after the Biden administration added a staggering $8.4 trillion to the national debt during his four-year term, the largest increase under any presidential administration in American history.

The credit reduction completes a trifecta of rating cuts by major agencies. Standard & Poor’s first cut America’s rating in 2011, followed by Fitch in 2023. Moody’s remained the last holdout until now.

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Despite the downgrade, Moody’s revised its outlook from “negative” to “stable,” acknowledging America’s economic resilience and the dollar’s continued role as the global reserve currency. The agency recognized these strengths partially offset fiscal challenges.

The downgrade arrives during a challenging period for President Trump’s administration. Congressional Republicans recently rejected a comprehensive tax cut proposal linked to his economic agenda.

Treasury Secretary Scott Bessent aims to reduce the deficit-to-GDP ratio from 6.4% to 3% through tariffs and spending cuts.

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Financial markets may experience several ripple effects. Borrowing costs could rise for the government, potentially increasing interest rates for mortgages and business loans.

Global investors might reconsider their positions in US Treasuries, possibly weakening the dollar.

Credit ratings assess a country’s ability to honor its debts. The downgrade to Aa1 still places the US in the “very high quality, very low risk” category, though no longer at the pinnacle. Higher ratings typically translate to lower borrowing costs for governments.

This development contrasts with recent upgrades for other nations. Brazil, for example, saw its rating improve to Ba1 in October 2024.

The US downgrade signals broader concerns about fiscal sustainability among developed economies and may reshape perceptions of safe-haven assets in global financial markets.

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