The end of an era has been marked by Moody’s downgrading America’s credit standing, which had remained unblemished since 1917. As reported by CNN on Friday, the agency demoted the US to Aa1, aligning it with rivals Fitch Ratings and S&P, who previously cut their ratings in 2023 and 2011.
In a forthright statement, Moody’s cited “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns” as a primary reason for the downgrade.
The agency cautioned that America’s borrowing requirements are only set to escalate, potentially burdening the entire economy.
Despite the significant downgrade, both the White House and Treasury Department remained silent, refraining from immediate comment.
Moody’s reassured that the US is not at risk of another imminent downgrade, stating: “Its long history of very effective monetary policy led by an independent Federal Reserve” has maintained a “stable.”, reports the Mirror.
However, political uncertainty looms.
President Donald Trump has recently questioned whether he would uphold the Fed’s independence, having previously threatened to dismiss Chair Jerome Powell.
Nonetheless, an Aa1 rating is not to be dismissed lightly.
Moody’s recognised that, despite being under strain, America’s political foundations remain solid.
“The stable outlook also takes into account institutional features, including the constitutional separation of powers among the three branches of government that contributes to policy effectiveness over time and is relatively insensitive to events over a short period.
“While these institutional arrangements can be tested at times, we expect them to remain strong and resilient,” the agency said.
Moody’s has outlined the pathway to reclaiming AAA status: boost revenues or cut back on expenditures.
Sharp cuts have been implemented by Trump’s administration, not least through Elon Musk’s Department of Government Efficiency, which has led to thousands of job cuts and the evisceration of the US Agency for International Development (USAID).
Nevertheless, it remains unclear whether these radical reductions will significantly dent the ballooning debt issue in America.
The spectre of a summer default looms larger as America inches towards the fiscal precipice, with the Treasury Department repeatedly sounding the alarm over the need for Congress to raise the borrowing limit.
Last November, Moody’s raised red flags, putting the US on downgrade alert as political turmoil seemed to intensify.
This turmoil includes the previous summer’s brush with a default crisis, the unprecedented removal of House Speaker Kevin McCarthy, and a staunchly divided Congress that struggled for weeks to choose his successor.