Moody Downgrades Credit Rating Amid Rising Debt and Political Uncertainty
Moody’s Downgrades U.S. Credit Rating Amid Rising Debt and Political Gridlock
Washington, D.C., May 17, 2025* — In a significant development, Moody’s Investors Service has downgraded the United States’ credit rating from its highest level of Aaa to Aa1. This move marks the final of the three major credit-rating agencies to lower the U.S. rating,
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Reasons Behind the Downgrade
The credit rating was lowered by Moody’s due to the ongoing inability of both parties in Washington to handle increasing federal debt and deficits. Right now, the U.S. debt is approximately \$28.9 trillion, close to its annual GDP, and more is spent yearly on interest payments than on defense. The 2024 federal deficit reached 6.4% of GDP—an unusually high level outside wartime.
The change in rating was made due to ongoing disagreements in Washington over how to tackle the widening deficits and debt. Moody’s estimates that extending expiring tax cuts from 2017 would add \$4 trillion more to the deficit.
Political Implications
A downgrade strongly complicates the way Trump can tell the story of the economy. The Republicans blocked his latest bill, known as the “Big Beautiful” bill, due to worries that its large portion of tax cuts would further harm the country’s finances.
Sen. Schumer said that the national financial issues are caused by the Republicans, but Rep. Hill noted that both parties are to blame. This change indicates that many people are still worried about dealing with government and legal issues in the country.
Economic Impact
Some ETFs lost value in after-market trading, with the amounts varying between not even 1% and 1.3%. At the same time, there is optimism from investors, as most significant sectors are showing increased earnings. Illustrating this, the Dow Jones, S&P 500 and Nasdaq measured strong gains and went up by the end of the week.
But downgrading national credit could mean government bond rates go up and loans for consumers become more expensive. The outlook for U.S. credit remains stable, according to Moody’s. ([Barron’s][3])
Global Perspective
As a result of this change, the U.S. is now aligned with New Zealand and Finland at the AA+ level, while Canada, Australia, and Germany keep the highest rating. This downgrade might intensify the challenge for Congress to get legislation approved for extending the 2017 expiring tax cuts. Moody’s estimates the extension would add \$4 trillion more to the deficit.
Conclusion
This Moody’s downgrade is a result of lasting worry about the country’s financial direction and difficulties in reaching political agreements. Because of the rise in debt and political troubles, the downgrade alerts Americans that good fiscal control and cooperation from both parties are essential. How the current fiscal challenges are managed will directly affect the long-term results of this decision.
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