Moody’s downgrades US credit rating to Aa1, citing rising government debt and interest costs amid ongoing fiscal deficits.
In Short:
Moody’s has downgraded the US credit rating from Aaa to Aa1 due to rising government debt and interest costs. This downgrade may lead to higher yields on Treasury debt and highlights the need for significant fiscal reforms to address a substantial budget deficit.
Moody’s has downgraded the United States’ credit rating from Aaa to Aa1, marking a significant setback for the nation.
The downgrade comes amid escalating government debt and rising interest costs associated with the federal budget deficit, which Moody’s states have reached levels higher than other similarly rated countries.
As a result of this adjustment, investors may demand higher yields on U.S. Treasury debt, reflecting increased risk. The yield on the 10-year Treasury note rose to 4.48% in after-hours trading, while major stock indices also faced declines.
Moody’s had previously maintained the highest rating for U.S. sovereign debt but has now aligned its rating with rivals like Standard & Poor’s and Fitch Ratings, which also downgraded the U.S. in recent years.
The U.S. is currently grappling with a substantial budget deficit of $1.05 trillion, significantly higher than the previous year. Analysts predict that without substantial fiscal reforms, federal deficits will continue to widen.
The potential extension of tax cuts from the 2017 Tax Cuts and Jobs Act could exacerbate these issues, pushing federal deficits to nearly 9% of GDP by 2035.
Economists have noted a decrease in foreign demand for U.S. Treasuries, indicating a changing perception among investors regarding U.S. debt. The Moody’s downgrade is seen as a wake-up call for policymakers, as the U.S. faces continual pressure to address fiscal challenges.
