NEW YORK (Reuters) – Moody’s on Friday downgraded the credit rating of the United States by a notch to “Aa1” from “Aaa”, citing rising debt and interest “that are significantly higher than similarly rated sovereigns.”
U.S. President Donald Trump’s sweeping tax bill failed to clear a key procedural hurdle on Friday, as hardline Republicans demanding deeper spending cuts blocked the measure in a rare political setback for the Republican president in Congress.
As written, the bill would add trillions of dollars to the federal government’s $36.2 trillion in debt over the next decade.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in a statement.
U.S. Treasury securities fell and yields rose late Friday after the news.
COMMENTS:
CHUCK SCHUMER, SENATE DEMOCRATIC LEADER, UNITED STATES SENATOR FROM NEW YORK
“Moody’s downgrade of the United States’ credit rating should be a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway.
“Sadly, I am not holding my breath – today’s GOP simply does not care about deficits or our nation’s fiscal health. Republicans are hell-bent on a multi-trillion tax cut for the ultra-wealthy, leading to nothing but higher prices, more debt, and fewer jobs.
LAWRENCE GILLUM, CHIEF FIXED INCOME STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“The downgrade isn’t altogether surprising. Moody’s hinted at the move as early as 2023 when it downgraded the outlook from stable to negative. But now that the US has officially lost the last of its AAA/Aaa ratings (from the main three rating agencies), we hope Congress and the Trump administration take this action seriously and reign in deficit spending. We’ll see how the bond market reacts on Monday but if the move is muted, it’s unlikely it will have much impact. Unfortunately, unless/until the bond market pushes back aggressively in the form of higher yields, it’s unlikely Washington will take this recent downgrade seriously. We hope we’re wrong.”
CAROL SCHLEIF, CHIEF MARKET STRATEGIST, BMO PRIVATE WEALTH, MINNEAPOLIS
“Moody’s is the last of the big three ratings agencies to drop the U.S. credit rating down a notch – so not entirely shocking. It may at the margin give investors a bit of pause – especially after the exuberant run this week that pushed US indexes back to basically neutral on the year (NASDAQ up 7% alone this week and S&P up 5%).”
“The bond market has been keeping a sharp eye on what transpires in Washington this year in particular. As congress debates the “big, beautiful bill,” the bond vigilantes will be keeping a sharp eye on making them toe a fiscally responsible line. With all three credit agencies pointing to the annual overspend notching up toward a $2 trillion run rate and the outstanding total at peace time highs, there’s very little wiggle room.”
TALLEY LEGER, CHIEF MARKET STRATEGIST, THE WEALTH CONSULTING GROUP, NEW JERSEY
“The downgrade is late. I’d be inclined to use it as a contrarian indicator to buy US dollar denominated assets. The sell American trade got overdone in April which is partially why our markets have rebounded so forcefully in May. I think it continues because of persistent pessimism which is good for our long term optimism.”
JAMES HUMPHRIES, MANAGING PARTNER, MINDSET WEALTH MANAGEMENT, INDIANAPOLIS
“Moody’s decision today to downgrade U.S. long-term debt from Aaa to Aa1 marks the first time all three major credit agencies–Moody’s, S&P, and Fitch–have rated the U.S. below the top tier. While the change is unlikely to have immediate market consequences, it signals rising concern about America’s fiscal trajectory.
“Moody’s cited several key factors: persistently high deficits, a rising interest burden, and the erosion of fiscal policymaking due to political polarization. As of 2025, U.S. federal debt stands at roughly 124% of GDP, with annual interest costs projected to exceed $1 trillion within the next few years–surpassing both defense and Medicare spending if trends continue.
“The downgrade does not reflect doubts about the U.S. repaying its obligations in the short term. Treasury securities remain the most liquid and sought-after instruments in the global fixed-income market. But from a credit analyst’s perspective, the underlying fiscal dynamics are becoming harder to ignore.
“It’s also worth noting that Moody’s moved the U.S. outlook from ‘negative’ to ‘stable,’ suggesting no further downgrades are anticipated in the near future–provided conditions do not worsen materially. This contrasts with Fitch and S&P, which both cited similar concerns in previous years, primarily around debt-ceiling brinkmanship and lack of structural reform.
“For investors, this downgrade may feel more symbolic than actionable. There has been no material uptick in Treasury yields following the announcement, and demand for U.S. debt remains robust. However, the long-term implications are clear: continued fiscal expansion without credible efforts to stabilize debt could eventually impact borrowing costs and economic flexibility.”
KEITH LERNER, CO-CHIEF INVESTMENT OFFICER, TRUIST ADVISORY SERVICES, ATLANTA
“There were some signs that we were moving that way (toward a downgrade). It’s just a surprise that it is happening now before we’ve actually passed new legislation around the tax bill.”
“It could give people an excuse to take a little bit of profits, but I don’t know that this is a game changer overall.”
“There’s a tug of war in the markets right now in how much pro-growth policies do we want versus the deficit moving higher and the interplay with interest rates.”
DARRELL DUFFIE, PROFESSOR OF FINANCE AT STANFORD UNIVERSITY’S GRADUATE SCHOOL OF BUSINESS, FORMERLY ON MOODY’S BOARD OF DIRECTORS
“It basically adds to the evidence that the United States has too much debt… I think the message has already been received by policymakers, I’m not sure what they’re going to do about it. Congress is just going to have to discipline itself, either get more revenues or spend less.”
STEPHEN MOORE, FORMER SENIOR ECONOMIC ADVISOR TO PRESIDENT DONALD TRUMP AND HERITAGE FOUNDATION ECONOMIST
“Outrageous. Moody’s has now become a political arm of the Democratic Party. How is extending the Trump tax cut going to reduce the value of the bonds. If a US backed government bond isn’t triple A asset then what is?”
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK
“Fiscal profligacy and irresponsible governance – including the perpetual debt ceiling standoffs – aren’t new and there will be a day of fiscal reckoning when Congress will have to reign in debt. But the US borrowing capacity is still unrivaled and potential revenue generation is unmatched. No doubt the US has a spending fueled debt problem, but there is little chance – at least in the medium term – that the US won’t make good on its obligations. At some point the market will impose discipline that will force cuts but demand at the moment is still ample for US debt.”
TOM DI GALOMA, MANAGING DIRECTOR OF RATES AND TRADING, MISCHLER FINANCIAL, PARK CITY, UTAH
“Very surprising. This is big, markets were not expecting this at all. I think that is highlighting the problems on the budget talks in Congress, the bill failed to pass today in the House committee.”
SPENCER HAKIMIAN, CEO, TOLOU CAPITAL MANAGEMENT, NEW YORK
“The downgrade of the US credit rating by Moody’s is a continuation of a long trend of fiscal irresponsibility that will eventually lead to higher borrowing costs for the public and private sector in the United States.”
“I didn’t even blink, totally not a surprise for me.”
BRIAN BETHUNE, ECONOMICS PROFESSOR, BOSTON COLLEGE, NEWTON MASSACHUSETTS
“This sounds similar to what S&P did in 2011. That S&P (downgrade) announcement was not well received by markets, and led to a budget sequester agreement…which led to a reduction in the deficit. Then Trump cut taxes (in his first term) so we backed out of the compromise.”
“The downgrade is a wake-up call for Republicans. They have got to come up with a credible budget agreement that puts the deficit on a downward trajectory.”
JAY HATFIELD, CEO, INFRASTRUCTURE CAPITAL ADVISORS, NEW YORK
“This news comes at a time when the markets are very vulnerable and so we are likely to see a reaction. I expect S&P to be down by nearly 100 points or so but expect it to stabilize later in the week. I suspect that all the tariff related announcement could have had also played a role in the downgrade, even if they don’t say so.”
(Compiled by the Global Finance & Markets Breaking News team)
