Moody's Downgrades US Credit Rating to AA1 Citing 134% Debt-to-GDP Ratio by 2035

Moody’s has downgraded the United States’ credit rating from AAA to AA1, citing mounting concerns over the nation’s soaring national debt and rising interest payment ratios. This decision marks a significant shift in the country’s financial standing, as Moody’s joins other major rating agencies in stripping the US of its top-tier credit score.

The downgrade was announced on Friday, accompanied by a change in the country’s outlook from negative to stable. Moody’s attributed the decision to the United States’ escalating national debt and interest payment ratios that surpass those of other countries with similar credit ratings. The agency highlighted that as deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.

Without adjustments to taxation and spending, Moody’s expects budget flexibility to remain limited. Mandatory spending, including interest expense, is projected to rise to around 78% of total spending by 2035 from about 73% in 2024. If the 2017 Tax Cuts and Jobs Act is extended, it will add around $4 trillion to the federal fiscal primary deficit over the next decade, excluding interest payments. As a result, federal deficits are expected to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024. This increase is driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. The federal debt burden is anticipated to rise to about 134% of GDP by 2035, compared to 98% in 2024.

Moody’s latest decision strips the United States of its final Triple-A credit rating. The downgrade follows earlier moves by other major agencies. In 2011, Standard & Poor’s lowered the US’ rating from AAA to AA+ due to concerns over the government’s inability to address rising debt levels. In 2023, Fitch followed suit, citing persistent budget deficits and political infighting as key drivers of its downgrade.