The federal government’s credit rating dropped from Aaa to Aa1 due to an “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 the rating service.
Moody’s predicted that the extension of the 2017 Tax Cuts and Jobs Act would “add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade.”
The company pointed out that Congress and past administrations have been unable to agree on how to curb the pattern of substantial yearly budget deficits and rising interest costs.
“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s wrote in a press release. “Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”
Despite the credit rating downgrade, Moody’s changed the U.S.’s risk outlook from negative to stable.
“The US retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency,” Moody’s said.
HIGH INTEREST RATES COULD BEDEVIL TRUMP AS DEBT RISES
The press release said that despite fiscal “policy uncertainty” in recent months, the ratings service expects the U.S. to “continue its long history of very effective monetary policy led by an independent Federal Reserve.”
Moody’s new rating comes as congressional Republicans seek to pass President Donald Trump’s “big, beautiful bill” and the Trump administration negotiates trade deals with foreign countries after the president imposed “Liberation Day” tariffs on most of the world.
