In brief
The loss of the triple-A rating raises concerns about financial reliability as borrowing costs could increase for the US government.
The United States has officially lost its last perfect credit rating as Moody's Investors Service has downgraded the country's rating from 'AAA' to 'Aa1'. The agency cited growing concerns about the government's ability to manage its obligations, specifically pointing to escalating deficits and interest payments that have risen significantly over the past decade. A triple-A rating is the highest available, indicating a nation's strong financial health and its capacity to meet financial commitments without issue.Moody's had previously warned earlier in 2023 that the US credit rating was at risk. This downgrade follows similar actions by other firms, including Fitch Ratings in 2023 and S&P Global Ratings in 2011. For over a century, since 1917, Moody's had assigned a flawless credit rating to the US, making this change particularly noteworthy.The firm argued that the downgrade underscores the increase of government debt and interest payment ratios to levels that considerably exceed those of other similarly rated countries. In response, the White House commented that it is actively working to address the situation, with spokesman Kush Desai criticizing Moody's credibility.The impact of a lower credit rating could lead to higher borrowing costs for the US, making it potentially more challenging for the government to issue debt. Yet, Moody's did point out that the United States still possesses strong credit strengths, such as economic size, resilience, and the federal reserve currency status of the US dollar. The agency anticipates that federal debt will rise to about 134% of gross domestic product (GDP) by 2035, compared to 98% the previous year.This alarming downgrade coincides with significant political developments, as a major spending bill championed by former President Trump faced difficulties in Congress, failing to garner necessary support within the House Budget Committee. Additionally, economic indicators reveal a contraction in the US economy, shrinking at an annual rate of 0.3% during the first quarter amid falling government expenditure and surging imports. The Commerce Department previously noted a contrast to the 2.4% growth observed in the preceding quarter. The unfolding financial landscape in the US is raising eyebrows, demanding urgent attention from policymakers.
