Moody’s Downgrades US Credit Rating: There have been major changes in the financial markets as Moody’s Ratings downgraded the United States’ long-term and senior unsecured ratings from Aaa to Aa1. For the first time, the U.S. has lost its top-level credit rating from the remaining agency that always maintained it, making many people worry about the nation’s future financial condition.
Moody’s attributed the downgrade to large fiscal deficits, a heavier debt burden, and delays in reaching budget deals in Washington. The agency indicates that the budget of the U.S. is showing a persistent imbalance, and improvement is not in sight. The downgrade came with a stable outlook, meaning that although the risks are significant, they are not at a dangerous, fast-moving stage.
Why Was the Downgrade Issued?
The main reasons for the downgrade are persistently high fiscal deficits, increasing debt compared to the GDP, and poor management of finances. According to Moody’s, the U.S. federal deficit will hit 6.4% of GDP in 2024 and may rise to a startling 9% by 2035. Expectations show that the debt held by the federal government will rise from 98% of GDP in 2024 to about 134% in 2035.
A major concern at the moment is that servicing our debt is taking up more of our budget. The government expects to use 30% of its revenue for interest by 2035, which is higher than the 18% it will use this year. According to Moody’s, developing strategies to solve this financial problem has consistently eluded American government leaders and members of Congress. Reversing the 2017 Tax Cuts and Jobs Ac,t which could boost deficits by $4 trillion over ten years if continued, has proved too difficult in politics.
Impact on Economy and Markets
Although the downgrade is mostly symbolic, it can bring about real effects on the U.S. and global markets. When the U.S. has a lower credit rating, it means the country is seen as riskier, which could mean the government borrows at higher rates. As a result, it could influence rates for other types of loans such as house mortgages, business loan,s and debts borrowed by the government.
Due to a higher risk, investors could demand more compensation in the form of higher bond yields, meaning the government would need to pay more in interest costs. Still, there is a slight chance that foreigners’ confidence in investing in the U.S. might dip slightly, even though the country continues to bring many benefits.
Why Things Have Not Hit Crisis Point… Yet
Although Moody’s lowered the rating, it still kept the outlook stable thanks to the U.S.’s great institutions and economic condition. It continues to be helped by its strong economy, high GDP per capita ($85,812 in 2024), and the U.S. dollar being the main reserve currency used around the world.
The company also noted the strength of the nation’s monetary policy thanks to the Federal Reserve’s independence and credibility. Errors and political pressures in making fiscal decisions have not limited the central bank from stabilizing the economy whenever there are problems.
Also read: Multiple School Closures Across the U.S. Due to Financial Struggles and Enrollment Declines
Path Forward: Risks and Opportunities
Moody’s says that when the U.S. cuts spending or raises revenue, it may consider raising its rating once again. Should confidence in the U.S. dollar quickly decrease or there be a sharper rise in the country’s debt, more downgrades could happen.
The chance of this crisis in the present is not high, but the situation may become dangerous over time. Social Security, Medicare, and interest on debt add up to over 77% of federal funds by 2035, policymakers will run out of space in the budget unless substantial changes are adopted.
