Washington (AFP) – The United States lost its last triple-A credit rating from a major agency Friday as Moody’s announced a downgrade, citing rising levels of government debt and dealing a blow to Donald Trump’s narrative of economic strength and prosperity. The downgrade to Aa1 from Aaa adds to the bad news for the US president, coming on the same day his flagship spending bill failed to pass a key vote in Congress due to opposition from several Republican fiscal hawks.
Explaining its decision, the ratings agency noted “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.” Moody’s warned it expects federal deficits to widen to almost nine percent of economic output by 2035, up from 6.4 percent last year, “driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.” As a result, it expects the federal debt burden to increase to about 134 percent of gross domestic product (GDP) by 2035, compared to 98 percent last year.
The White House took to X to push back, with communications director Steven Cheung singling out the chief economist of Moody’s Analytics, Mark Zandi, for criticism. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung posted.
– ‘Fiscal house is not in order’ –
Moody’s decision to downgrade the United States from its top credit rating mirrors similar decisions from the two other major US ratings agencies, S&P and Fitch. S&P was the first to cut its rating for the United States back in 2011, during Barack Obama’s first term in office, citing its concerns that a debt management plan “would be necessary to stabilize the government’s medium-term debt dynamics.” Twelve years later, Fitch followed suit, warning of “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.”
Moody’s echoed its peers in its decision Friday, noting in a statement that “successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.” “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” it added, flagging that it expected larger deficits to continue over the next decade. America’s “fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns,” Moody’s said.
For Republican congressman French Hill, who chairs the House Financial Services Committee, the Moody’s downgrade “is a strong reminder that our nation’s fiscal house is not in order.” House Republicans “are committed to taking steps to restore fiscal stability, address the structural drivers of our debt, and foster a pro-growth economic environment,” he said.
Brendan Boyle, the ranking Democrat on the House Budget Committee, said the downgrade “is a direct warning: our fiscal outlook is deteriorating, and House Republicans are determined to make it worse.” “The question is whether Republicans are ready to wake up to the damage they’re causing,” Boyle said.
The Moody’s decision comes amid a tough fight in Congress to pass Trump’s much-touted “big, beautiful” spending bill, which aims to revamp and renew a roughly $5 trillion extension of his 2017 tax relief, paid for at least partially through deep cuts to the Medicaid health insurance program that covers more than 70 million low-income people.
On Friday, the agency also changed its outlook from “negative” to “stable,” noting that despite the United States’ poor record tackling rising government debt levels, the country “retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency.”
© 2024 AFP
