Moody's Knocks the U.S. Down a Notch, White House Fires Back Fierce
A credit rating agency, Moody's, downgrades the United States to a lower status, removing its standing as a top-tier credit holder.
Looks like the U.S. took a hit, as Moody's slapped a downgrade on our top credit rating, making us the third major rating agency to do so. Moody's dropped us from "Aaa" to "Aa1" and gave us the label "stable." Here's the lowdown.
Moody's didn't hold back on the reasons, stating that the U.S. fiscal situation is set to worsen, especially when compared to other highly-rated countries. They noted that the extraordinary financial and economic strengths of the U.S. might not be enough to offset the decline in fiscal metrics [1].
The White House didn't appreciate the downgrade and went ballistic, firing a barrage of criticism at Moody's. Communications director, Steven Cheung, slammed Moody's economist Mark Zandi on social media, labeling him a political adversary of U.S. President Donald Trump [2]. Cheung said, "No one takes his 'analyses' seriously. He's been wrong time and time again."
In the past, Standard & Poor's dropped the U.S. in 2011, and Fitch followed suit in 2023. Moody's was the last major rating agency to give the U.S. a top rating – the coveted "Triple-A Rating." Moody's had already hinted at a downgrade by switching the U.S.'s outlook to "negative" from "stable" back in November 2023 [2]. Lower ratings can drive up borrowing costs.
Moody's concerns mainly revolve around ballooning budget deficits, rising interest costs, and the lack of agreement from congress and the administration on measures to reverse the trend [3][4]. They're expecting the federal debt-to-GDP ratio to skyrocket to about 134% by 2035, compared to 98% in 2024. Moody's doesn’t anticipate the current budget plans to lead to substantial long-term cuts in mandatory spending.
When it comes to the controversial tariffs slapped on by Trump, Moody's expects a short-term slowdown in economic growth as the economy adjusts. But seems like they believe the long-term growth of the U.S. remains unaffected [3]. Moody's highlighted "the extraordinary size, resilience, and dynamism of the U.S. economy" and the mighty power of the U.S. dollar as a global reserve currency [3]. Despite recent uncertainty, Moody's expects the Fed to maintain its stellar track record of effective monetary policy under the Federal Reserve's leadership.
Reference(s):[1] ntv.de, mau/rts[2] CNBC, Daniel Roberts[3] The New York Times, Binyamin Appelbaum, Jim Tankersley, and Alan Rappeport[4] Wall Street Journal, Nick Timiraos
- The downgrade by Moody's on the U.S.'s top credit rating is a matter of concern for the employment policies of various businesses, as it might increase borrowing costs, potentially affecting hiring and investment decisions.
- The unfavorable general-news about the U.S.'s financial situation, such as the downgrade by Moody's, can have significant implications for the community policy and politics, as it could impact public trust, economic stability, and future economic agreements.
