Moody’s Investors Service has downgraded the United States’ sovereign credit rating from Aaa to Aa1, citing concerns over the country’s growing debt burden and rising interest costs.
This marks the first time Moody’s has lowered the U.S. rating, aligning it with previous downgrades by Standard & Poor’s (2011) and Fitch Ratings (2023).
The downgrade reflects the increasing difficulty the U.S. government faces in managing its fiscal deficit, which has ballooned to $1.05 trillion – a 13% increase from the previous year.
Moody’s analysts noted that successive administrations have failed to implement effective measures to curb spending, leading to a projected U.S. debt burden of 134% of GDP by 2035.
Market reactions were swift, with U.S. Treasury yields rising and stock futures sliding as investors reassessed the risk associated with U.S. assets. The downgrade could lead to higher borrowing costs for the government and businesses, potentially slowing economic growth.
Despite the downgrade, Moody’s emphasised that the U.S. retains exceptional credit strengths, including its large, resilient economy and the continued dominance of the U.S. dollar as the global reserve currency.
However, without significant fiscal reforms, further credit rating adjustments may be inevitable.
Time to print some more money…
