U.S. Loses Last Top Credit Rating With Downgrade From Moody’s
By Michael Mackenzie, Smart Money Mindset
May 16, 2025
The United States has been stripped of its last top credit rating after Moody’s Investors Service downgraded its rating from Aaa to Aa1. This decision underscores growing apprehensions regarding the federal government’s escalating debt and budget deficits, which may jeopardize the country’s status as a leading destination for global capital and could result in higher borrowing costs for the government.
Moody’s Downgrade: What it Means
On Friday, Moody’s downgraded the U.S. credit rating, aligning it with the ratings issued by Fitch Ratings and S&P Global Ratings, which had previously reduced their ratings below the coveted triple-A level. This adjustment comes shortly after Moody’s changed its outlook on the U.S. credit rating to negative over a year ago, and now presents a stable outlook. In their statement, Moody’s acknowledged the strong economic and financial attributes of the United States but emphasized that these strengths are increasingly overshadowed by deteriorating fiscal metrics.
“While we recognize the U.S.’ significant economic strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” the agency remarked.
The downgrade points to continued financial mismanagement as a cause for concern, with Moody’s attributing the problems to successive administrations and Congress, which have driven budget deficits that show little sign of improvement. Recent moves in Washington towards a substantial tax-and-spending bill are anticipated to add trillions to the national debt in the forthcoming years.
Political Reactions
In response to the downgrade, the White House characterized the decision as politically motivated. Steven Cheung, a spokesperson for President Donald Trump, singled out Mark Zandi, an economist with Moody’s Analytics, questioning his credibility and accusing him of harboring a long-term bias against the administration.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung declared. It is important to note that Moody’s Ratings operates separately from Moody’s Analytics, and Zandi did not comment immediately regarding the allegations.
Impact on Financial Markets
The reaction to Moody’s announcement was rapid in major financial markets. Yields on the 10-year U.S. Treasury notes increased as high as 4.49%, and an exchange-traded fund that tracks the S&P 500 experienced a 0.6% drop in post-market trading.
Tracy Chen, a portfolio manager at Brandywine Global Investment Management, remarked on the potential for increased yields on Treasury bonds in light of the downgrade. “This downgrade may indicate that investors will demand higher yields on Treasuries.” Past downgrades from both Fitch and S&P had not drastically impacted U.S. assets, leading to questions about how the current market will react given the sense of uncertainty surrounding the safety of U.S. Treasuries and the dollar.
Rising Federal Deficits and Economic Concerns
As of now, the federal budget deficit hovers near $2 trillion annually, equating to more than 6% of the gross domestic product (GDP). Economic downturns exacerbated by international trade tensions continue to aggravate financial pressures, typically necessitating greater government spending as private sector activities contract.
U.S. Treasury Secretary Scott Bessent has echoed concerns regarding the sustainability of the country’s fiscal trajectory. He previously indicated that the current debt levels pose a significant risk: "The debt numbers are indeed scary,” he noted. He further described a potential crisis involving a “sudden stop in the economy as credit would disappear,” underscoring his commitment to preventing such a scenario.
Despite the urgency of concerns, progress on legislative measures aimed at addressing fiscal challenges has been slow. Lawmakers have been attempting to move forward with a tax package that extends provisions from the 2017 Tax Cuts and Jobs Act. The Joint Committee on Taxation estimates that the total cost of the projected bill could reach $3.8 trillion over the next decade, although independent analysts warn that the actual costs could be considerably higher.
However, efforts encountered obstacles this Friday when a key House committee failed to advance a tax-and-spending bill, stymied by hard-line conservatives who raised cost-related objections and opposed President Trump’s push.
As the U.S. grapples with these economic challenges, the implications of the downgrade are likely to shape financial market reactions, investor confidence, and policy discussions in the weeks to come. The fate of the nation’s fiscal health remains a pressing issue as legislators seek to navigate through budgetary constraints and economic pressures.
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