Moody’s downgraded the United States’ sovereign credit rating on Friday, citing growing concerns over the nation’s ballooning $36 trillion debt. The move could complicate President Donald Trump’s tax-cut agenda and spark volatility in global markets.
The downgrade marks the end of a century-long “Aaa” rating from Moody’s, which first awarded the U.S. its highest credit grade in 1919. It is the last of the three major rating agencies to take such action, following similar moves by Fitch in 2023 and S&P in 2011.
Moody’s lowered the rating by one notch to “Aa1,” shifting its outlook from “negative” to “stable.” The agency attributed the decision to persistent fiscal deficits and rising interest payments, warning that successive U.S. administrations and Congress have failed to enact effective measures to reverse the debt trajectory.
“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in its announcement.
The move drew sharp criticism from Trump allies. Stephen Moore, a former senior economic adviser to Trump and a Heritage Foundation economist, called the downgrade “outrageous,” telling Reuters: “If a U.S.-backed government bond isn’t a triple-A asset, then what is?”
White House communications director Steven Cheung took to social media to criticize Moody’s economist Mark Zandi, describing him as a political opponent of the president. Zandi, who is chief economist at Moody’s Analytics—a separate entity from the credit ratings agency—declined to comment.
Since returning to the White House on January 20, Trump has pledged to balance the federal budget. His Treasury Secretary, Scott Bessent, has repeatedly emphasized the administration’s goal of lowering government borrowing costs. However, those ambitions have yet to win over investors.
Efforts to curb spending through Elon Musk’s Department of Government Efficiency have fallen short, and revenue-raising initiatives such as tariffs have triggered fears of trade wars and economic slowdown, rattling markets.
The downgrade, which was announced after market close, pushed Treasury yields higher. Analysts warn that it could spook investors when markets reopen on Monday.
“This basically adds to the evidence that the United States has too much debt,” said Darrell Duffie, a finance professor at Stanford University and former member of Moody’s board. “Congress is just going to have to discipline itself—either get more revenues or spend less.”
Focus on Deficits
Trump is urging lawmakers in the Republican-controlled Congress to pass legislation extending the 2017 tax cuts, a flagship achievement of his first term. Nonpartisan analysts estimate the move would add trillions to the national debt.
The downgrade came on the same day that the tax bill failed to pass a key procedural vote, as hardline Republicans demanded deeper spending cuts, handing Trump a rare legislative setback.
Moody’s said the fiscal plans under discussion were unlikely to result in sustained deficit reduction. The agency projects that the U.S. debt burden will rise to 134% of GDP by 2035, up from 98% in 2024.
“Moody’s downgrade of the United States’ credit rating should be a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway,” said Senate Democratic Leader Chuck Schumer. “Sadly, I am not holding my breath.”
Market Fragility
The downgrade comes at a time of heightened fragility in financial markets, as Trump’s tariff measures against key trading partners have fueled inflation fears and raised the risk of a global slowdown.
Credit ratings are key tools for investors in assessing the risk profile of borrowers. A lower rating typically translates into higher borrowing costs.
“This is just a continuation of the long trend of fiscal irresponsibility that will eventually lead to higher borrowing costs across both the public and private sectors,” said Spencer Hakimian, CEO of hedge fund Tolou Capital Management.
Long-term Treasury yields could rise further following the downgrade, unless offset by economic data that boosts demand for U.S. government bonds as safe-haven assets.
“This news comes at a time when the markets are very vulnerable, and so we are likely to see a reaction,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.
