Shock to the USA: Moody's Downgraded Credit Rating! Here are the Details

The US has completely lost its highest credit rating of AAA following the downgrade decision by Moody’s, the latest among the leading credit rating agencies.

Moody’s announced in a statement that the credit rating has been downgraded to Aa1 due to the increasing budget deficits and rising interest costs in the U.S.

The organization stated that the expanding budget deficits of the U.S. government are rapidly increasing the need for borrowing, which is putting upward pressure on interest rates in the long run. It was also noted that the current budget plans being discussed in Congress are insufficient to reduce the persistent imbalance between spending and revenues.

This decision came after similar rating rebates by Fitch Ratings in 2023 and S&P Global Ratings in 2011. Thus, the US has lost its highest credit rating from all three major rating agencies. The new credit rating is at Aa1 level; this level is currently shared with countries like Austria and Finland.

In its statement, Moody’s said, “Consecutive U.S. administrations and Congress have failed to agree on measures to reverse the trend of high annual budget deficits and rising interest costs.”

The downgrade of the credit rating could increase the pressure already experienced due to high inflation and rising borrowing expectations in U.S. Treasury bonds. However, experts do not expect this reduction to cause significant turbulence in the market.

Indeed, after the S&P downgrade in 2011, Treasury bonds had risen due to the weak economic outlook. The U.S. still maintains its status as the world’s largest economy and remains a benchmark against which other countries’ economic reliability is compared.

Nevertheless, some investors believe that this recent downgrade could harm the perception of the U.S. as a global safe haven. It is suggested that this situation may lead global investors to demand higher yields on U.S. bonds.

Michael Goosay, the global head of Fixed Income Securities at Principal Asset Management, stated, “This situation could further increase the cost of servicing our debt, thereby widening the budget deficit.”