Moody’s delivers first US credit rating downgrade since 1917

The reduction comes shortly after the Treasury secretary warned of a possible default by the end of summer

Moody’s has stripped the US of its perfect triple-A credit rating, citing increasing concerns over debt affordability. The rating agency had held the country’s sovereign credit rating at the highest possible level since 1917.

The move brings the 116-year-old agency into line with its global rivals. Fitch Ratings downgraded the US rating to AA+ from AAA in August 2023, and Standard & Poor’s cut it to AA+ from AAA in August 2011.

The reduction to Aa1 “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,” Moody’s said in a statement released on Friday.

The agency noted that successive US administrations and Congress have failed to reach an agreement on measures to reverse the pattern of large annual fiscal deficits and rising interest costs.

Moody’s stated, however, that the US retains exceptional credit strengths, citing its size, resilience, dynamism, and the role of the dollar as the global reserve currency. 

Earlier this month, Treasury Secretary Scott Bessent warned about the possibility of a default as soon as August, calling for either raising or suspending the debt ceiling – a statutory limit on how much the federal government can borrow – to avoid running out of money to cover federal expenses.

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The US reached its ceiling of $36.1 trillion in January. Once the limit is hit, the government is legally barred from borrowing further to meet its obligations. The total federal debt has climbed to $36.2 trillion, according to official figures. 

The Treasury has avoided default by using so-called “extraordinary measures” – mainly accounting maneuvers such as suspending contributions to federal employee retirement funds – to keep up with its financial commitments.

Under former President Joe Biden, the debt ceiling was raised three times. The current president, Donald Trump, has argued that the cap should be eliminated entirely, calling it pointless if it’s routinely lifted. He has argued that the concept of a debt ceiling “doesn’t mean anything, except psychologically.”

Commenting on the rating downgrade, White House spokesperson Kush Desai said on Friday that Moody’s “would not have stayed silent as the fiscal disaster of the past four years unfolded” if the agency “had any credibility.” He also claimed that the Trump administration is currently dealing with the “mess” left by the previous administration.