Moody’s, a major credit rating agency, downgraded the United States’ credit rating from ‘AAA’ to ‘Aa1’ on May 17, 2025. This marks the first time since 1917 that Moody’s has lowered America’s rating. The downgrade reflects growing worries about the country’s ability to manage its increasing debt and budget deficits over the long term.
The agency pointed to more than ten years of rising government debt and growing interest payments as key factors in its decision. It criticized previous U.S. governments for failing to address these fiscal challenges with strong corrective measures. A triple-A rating signals the highest level of financial trust, showing that a country can repay its debts reliably. Moody’s decision signals increasing risks and could lead to higher borrowing costs for the U.S. government.
Despite the downgrade, Moody’s said the U.S. remains strong due to the global dominance of the U.S. dollar and its large, dynamic economy. However, these strengths may not fully make up for the serious fiscal problems ahead. Moody’s projects that U.S. federal debt will rise to around 134 percent of GDP by 2035, up from 98 percent last year. The growth in interest payments on this debt also adds pressure on government finances. These levels now exceed those of other countries with similar credit ratings.
The White House quickly responded by blaming the previous administration for the current fiscal issues. The current government stated it is focused on fixing inherited problems and suggested Moody’s should have acted sooner if concerns were valid.
On the same day, former President Donald Trump’s large budget plan failed to move forward in the House Budget Committee due to opposition from some Republican lawmakers. Meanwhile, new economic data showed the U.S. economy shrank by 0.3 percent in the first quarter of 2025. This was a sharp drop from the 2.4 percent growth recorded in the previous quarter. The Commerce Department said the slowdown was caused by reduced government spending and increased imports, as businesses rushed to import goods ahead of new tariffs, worsening the trade deficit.
This downgrade could lead to higher borrowing costs for the U.S. government and impact how investors view U.S. debt globally. Moody’s warns that urgent steps are needed to manage the growing fiscal challenges facing the country.
