Moody’s Downgrades the United States’ Sovereign Credit Rating
On Friday May 16th, 2025, the credit rating agency Moody’s downgraded the Unites States’ sovereign credit rating from Aaa (equivalent to AAA at Standard & Poor’s and Fitch) by one notch to Aa1 due to growing concerns over the nation’s USD 36 Trillion debt pile. Moody’s is the last of the three most important and recognisable rating agencies to downgrade the sovereign credit rating of the United States, with Fitch downgrading in 2023 and Standard and Poor’s downgrading in 2011. The United States has held a perfect credit rating from Moody’s since 1917, however the rating agency back in November when 2023 advised it might lower the U.S. credit rating when it changed its outlook from stable to negative.
The reaction from the White House was predictable, with spokesman Kush Desai saying, “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.” In another statement the White House advised that the administration was focused on fixing Biden’s mess. The White House communications director Steven Cheung also laid into Moody’s singling out their chief, Mark Zandi, who he said was a political opponent of President Trump, and is a Clinton donor and advisor to Obama. He went on to say, “nobody takes his analysis seriously and he has been proven wrong time and time again”.
Moody’s pointed out that in 2024, the government spending was higher than receipts by circa USD 1.8 Trillion, being the fifth year in a row where fiscal deficits have been above USD 1 Trillion. Debt interest has been growing year on year and eating into sizeable chunks of government revenue, with Moody’s pointing out that federal interest payments in 2021 absorbed 9% of revenue in 2021, 18% in 2024, and predict circa 30% by 2035. The GAO (Government Accountability Office), which is seen as an investigation arm of Congress has called the current situation unsustainable and went on to say that unless there is a change of policy debt held by the public will be double the size of the national economy by 2047.
After the announcement on Friday 16th, markets were unnerved on the following Monday morning, with stock markets recovering by the end of the day with experts confirming that markets had shrugged off the news, but some were advising that investors should be wary of complacency. However, some analysts advise the downgrade is a warning sign and may be the catalyst for profit taking after a huge run in the past month for equities. At the end of the day, United States Treasury Bonds are currently viewed by global investors as the safest investment in the world, and a downgrade by Moody’s is unlikely to stifle appetite for treasuries.
For most money managers and other global investors and market participants experts advise that the downgrade was probably seen coming for some time and lands in a market already wary of risks from tariffs and fiscal dysfunction. However, currently President Trump is pushing the Republican controlled Congress to pass a bill extending the 2017 tax cuts, a move some analysts predict will add many trillions to an already highly inflated government debt. However, hardline Republicans blocked the bill denuding deeper spending cuts. There was volatility in US Treasuries on Monday after the Moody’s announcement with 30-year treasuries breaking through the symbolic barrier of 5% (first time since October 2023) but slipped back to 4.937% by close of business. Experts suggest that the bond market had already priced in risk premium for government economic policy already in disarray, meaning Monday’s upward move in yields was just a knee-jerk reaction.
