Moody's downgrades US credit rating after 108 years

In a statement released by Moody's, it was announced that the US credit rating had been revised.

The statement noted that the country's long-term credit rating was downgraded from "Aaa" to "Aa1," and the credit rating outlook was changed from "negative" to "stable."

The statement conveyed that the downgrade reflects the fact that public debt and interest payment ratios have risen to significantly higher levels compared to countries with similar ratings over the past decade.

Pointing out that US administrations and Congress have been unable to reach an agreement on measures to reverse the trend of large annual fiscal deficits and rising interest costs, the statement assessed, "We do not believe that the current fiscal proposals under discussion will provide significant long-term reductions in mandatory spending and deficits."

The statement expressed that government revenues are expected to remain generally flat over the next decade, with larger deficits anticipated.

In contrast, the statement noted that persistent, large fiscal deficits will increase the government's debt and interest burden, and that it is likely that the US fiscal performance will deteriorate compared to its own history and other highly-rated countries.

The statement emphasized that the US retains exceptional credit strengths, such as the size, resilience, and dynamism of its economy, as well as the role of the dollar as a global reserve currency, adding, "We expect the country to maintain its track record of effective monetary policy managed by an independent US Federal Reserve (Fed)."

DEBT AND DEFICIT PROJECTED TO RISE

The statement pointed out that the US federal debt has risen sharply due to persistent fiscal deficits for over a decade, emphasizing that while federal spending has increased, tax cuts have reduced government revenues.

Highlighting that budget flexibility is expected to remain limited unless adjustments are made to taxation and spending, the statement projected that mandatory spending, which accounted for approximately 73 percent of total spending in 2024, is expected to rise to approximately 78 percent by 2035, including interest expenses, and that the deficit would increase by approximately 4 trillion dollars over the next 10 years if the 2017 tax cuts are extended.

The statement noted that the federal deficit, which was 6.4 percent of Gross Domestic Product (GDP) in 2024, is expected to rise to 9 percent in 2035. It was reported that the federal debt burden is also projected to rise from 98 percent of GDP to 134 percent during the same period.

The statement included the expression, "While GDP growth is likely to slow in the short term as the US economy adjusts to higher tariffs, we do not expect the country's long-term growth to be significantly affected."

Moody's was the last major credit agency to maintain the US credit rating at the Aaa level. Standard & Poor's downgraded the US credit rating to AA+ in 2011, and Fitch did so in 2023.

News Source: AA