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Moody's lowered the rating from a gold-standard Aaa to Aa1 but
said the United States "retains exceptional credit strengths
such as the size, resilience and dynamism of its economy and the
role of the U.S. dollar as global reserve currency.''
Moody's is the last of the three major rating agencies to lower
the federal government's credit. Standard & Poor's downgraded
federal debt in 2011 and Fitch Ratings followed in 2023.
In a statement, Moody's said: "We expect federal deficits to
widen, reaching nearly 9% of (the U.S. economy) by 2035, up from
6.4% in 2024, driven mainly by increased interest payments on
debt, rising entitlement spending, and relatively low revenue
generation.''
Extending President Donald Trump's 2017 tax cuts, a priority of
the Republican-controlled Congress, Moody's said, would add $4
trillion over the next decade to the federal primary deficit
(which does not include interest payments).
A gridlocked political system has been unable to tackle
America's huge deficits. Republicans reject tax increases, and
Democrats are reluctant to cut spending.
On Friday, House Republicans failed to push a big package of tax
breaks and spending cuts through the Budget Committee. A small
group of hard-right Republican lawmakers, insisting on steeper
cuts to Medicaid and President Joe Biden’s green energy tax
breaks, joined all Democrats in opposing it.
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