Moody’s Downgrades U.S. Credit Rating Over Soaring Debt

• Moody’s Ratings downgraded the U.S. credit rating by one notch on Friday, citing a decade-long rise in government debt and interest payment ratios that exceed those of similarly rated sovereigns, as stated in their announcement.
• The downgrade reflects fiscal challenges from high interest rates and growing debt, potentially increasing U.S. borrowing costs and impacting global financial markets, amid concerns over long-term budget sustainability.

Moody’s Ratings downgraded the U.S. credit rating by one notch on Friday, lowering it from Aaa to Aa1 and shifting the outlook from negative to stable. The decision reflects growing concerns over rising government debt and interest payments amid a high-interest-rate environment, according to the agency’s statement. The ratings agency highlighted that over the past decade, debt and interest payment ratios have surged to levels notably higher than those of similarly rated sovereigns, justifying the adjustment on its 21-notch rating scale. This downgrade underscores the challenges facing U.S. fiscal policy, as persistent budget deficits and rising borrowing costs erode the country’s financial flexibility. The decision follows a period of elevated interest rates, with the Federal Reserve maintaining tighter monetary policy to curb inflation, which has increased the cost of servicing the national debt, projected to exceed $36 trillion in 2025.

The downgrade could ripple through financial markets, potentially raising borrowing costs for the U.S. government and affecting Treasury yields, which serve as a benchmark for global debt markets. Investors may demand higher premiums to hold U.S. securities, impacting everything from mortgage rates to corporate bonds. While the U.S. retains a high credit rating, the downgrade signals caution about long-term fiscal sustainability, especially as entitlement programs and interest obligations consume a growing share of the budget. Moody’s action aligns with broader concerns among rating agencies, with Fitch also downgrading the U.S. from AAA to AA+ in 2023. Policymakers now face pressure to address structural deficits, but political gridlock may hinder meaningful reforms, leaving the U.S. vulnerable to further rating adjustments.

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