US Loses Last Perfect Credit Rating Amid Rising Debt

The US has lost its last perfect credit rating, with influential ratings firm Moody’s expressing concern over the government’s ability to pay back its debt. In lowering the US rating from ‘AAA’ to ‘Aa1’, Moody’s noted that successive US administrations had failed to reverse ballooning deficits and interest costs. A triple-A rating signifies a country’s highest possible credit reliability, indicating very good financial health with a strong capacity to repay debts.

Moody’s Downgrade Explanation

The downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” according to Moody’s statement. The firm expects federal debt to increase to around 134% of gross domestic product (GDP) by 2035, up from 98% last year. GDP measures all economic activity of companies, governments, and people in a country.

White House Response

The White House responded, saying it was “focused on fixing Biden’s mess” while taking a swipe at Moody’s. White House spokesman Kush Desai said, “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.”

Impact of Lower Credit Rating

A lower credit rating means countries are more likely to default on their sovereign debt and generally face higher borrowing costs. However, Moody’s maintained that the US “retains exceptional credit strengths such as size, resilience and dynamism and the continued role of the US dollar as the global reserve currency.”

Economic Context

The downgrade came on the same day as Trump’s landmark spending bill suffered a setback in Congress. Trump’s “big, beautiful bill” failed to pass the House Budget Committee, with some Republicans voting against it. The US economy shrank in the first three months of the year due to falling government spending and surging imports ahead of tariffs, contracting at an annual rate of 0.3%.

Path to Regaining AAA Rating

To regain its AAA rating, the US would need to boost government revenues or cut spending. Moody’s downgrade follows similar actions by Fitch Ratings in 2023 and S&P Global Ratings in 2011, stripping the US of its top-notch credit rating.