Moody’s Ratings downgraded the United States’ debt on Friday, stripping the country of its last perfect credit rating. The move could rattle financial markets and push up interest rates.
Of the three major credit rating agencies, Moody’s was the lone holdout, maintaining its outstanding rating of AAA for US debt. Moody’s has held a perfect credit rating for the United States since 1917.
It now ranks US creditworthiness one notch below that, at Aa1, joining Fitch Ratings and S&P, which lowered their credit ratings for US debt in 2023 and 2011, respectively.
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The decision came after a decade-long increase in government debt and interest payments. These have reached levels “significantly higher than similarly rated sovereigns,” according to Moody’s statement. The agency expects government borrowing needs to keep growing and weigh down the US economy in the future.
Moody’s, however, considers the US outlook “stable” thanks to “its long history of very effective monetary policy led by an independent Federal Reserve.” However, President Donald Trump has recently questioned whether he’ll respect this independence, threatening to sack Chair Jerome Powell.
Despite the downgrade, an Aa1 rating remains quite strong. Moody’s noted that America’s system of governance, while facing challenges, still deserves a near-perfect rating.
“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,” Moody’s said.
