On May 16, 2025, Moody’s Ratings downgraded the U.S. government’s long-term credit rating from Aaa to Aa1 and changed the outlook to stable from negative.
The one-notch downgrade on Moody’s 21-notch rating scale reflects the increase over more than a decade in federal debt and interest payments, which now outpace those of similarly rated countries.1 The agency specifically pointed to the lack of measures by successive administrations and Congress to curb large annual fiscal deficits and growing interest costs. The downgrade also reflects concerns about recent policy decisions, such as the potential extension of the 2017 tax cuts. As a result, Moody’s expects the total federal debt burden to rise to about 134% of GDP by 2035, as compared to 98% in 2024.1
Moody’s rating downgrade marks the first time all three major credit agencies have rated U.S. debt below their top tier. Standard & Poor’s (S&P) downgrade occurred in August 2011 followed by Fitch Ratings in August 2023.
Despite the downgrade, Moody’s changed its outlook for the U.S. from negative to stable, citing the resilience and size of the U.S. economy, the global role of the dollar, and the effective monetary policy led the Federal Reserve. The stable outlook also takes into account institutional features, including the constitutional separation of powers among the three branches of government that contributes to policy effectiveness over time and is relatively insensitive to events over a short period.1
We will continue to monitor these important aspects of the economy and provide updates to keep you informed. Please reach out to your advisor with any questions that you may have on the economy, your financial plan, or your portfolio positioning.
[1] Rating.moodys.com/ratings-news/443154, May 16, 2025
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