The US credit rating has slipped to ‘Aa1’ from ‘AAA’, as Moody’s Investors Service cites significant increases in government debt and interest payment ratios. A lower credit rating means higher borrowing costs for governments and consumers alike.
The United States has lost its last perfect credit rating, as Moody’s Investors Service downgraded the country’s rating from ‘AAA’ to ‘Aa1’. This downgrade reflects ‘the significant increase in government debt and interest payment ratios over the past decade’ , which are now higher than those of similarly rated sovereigns.
The US credit rating is a measure of the country's ability to repay its debts.
It is assigned by major credit rating agencies such as Moody's, Standard & Poor's, and Fitch.
A higher credit rating indicates lower borrowing costs for the US government.
The rating is based on factors like debt-to-GDP ratio, economic growth, and fiscal policy.
As of 2022, the US has a triple-A rating from all three major agencies.
This rating reflects the country's strong economy and ability to service its debts.
Historical Significance
Moody’s has held a perfect credit rating for the US since 1917. However, successive US administrations have failed to reverse ballooning deficits and interest costs, leading to this downgrade. This change in rating is a significant concern, as it implies that countries are more likely to default on their sovereign debt and face higher borrowing costs.
Moodys is a multinational credit rating agency that provides credit ratings, research, and data to investors worldwide.
Founded in 1909 by John Moody, the company is headquartered in New York City and has offices globally.
Moodys evaluates the creditworthiness of governments, corporations, and financial institutions, assigning grades from AAA (highest) to C (lowest).
The agency's ratings are widely used as a benchmark for investment decisions, with its research and analysis influencing market trends.
Implications of the Downgrade
A lower credit rating means that the US will need to pay higher interest rates to borrow money, both domestically and internationally. This could lead to increased borrowing costs for governments and consumers alike. The downgrade also raises concerns about the country’s ability to manage its debt and meet its financial obligations.
The United States national debt has been a persistent concern for policymakers and economists.
As of 2022, the total public debt stands at over $31 trillion, equivalent to approximately $95,000 per capita.
The rising debt is attributed to various factors, including government spending, tax policies, and demographic changes.
According to the Congressional Budget Office (CBO) , the national debt has increased by more than 50% since 2010, with a projected growth rate of over 5% annually.
Context: Rising Debt and Slowing Economy
The downgrade comes at a time when the US economy is facing significant challenges. Figures show that the US economy shrank in the first three months of the year, with government spending falling and imports surging due to firms racing to get goods into the country ahead of tariffs. The Commerce Department reported an annual rate of contraction of 0.3%, a sharp downturn after growth of 2.4% in the previous quarter.
Response from the White House
The White House has responded to the downgrade, with spokesman Kush Desai saying that Moody’s had ‘no credibility’ for warning about the fiscal disaster of the past four years. The administration is focused on fixing its economic problems and improving the country’s financial health.
Expert Analysis
Moody’s maintained that the US retains exceptional credit strengths such as size, resilience, and dynamism, and the continued role of the US dollar as the global reserve currency. However, the firm expects federal debt to increase to around 134% of gross domestic product (GDP) by 2035, up from 98% last year.
