The last AAA is gone! Moody's officially announced the downgrade of the US sovereign credit rating

On Friday (May 16) local time, Moody's, one of the three major international credit rating agencies, announced on its official website that it had decided to downgrade the US sovereign credit rating from Aaa to Aa1 due to the increase in the US government's debt and interest payment ratios.

Moody's stated that for over a decade, the growth levels of the US government's debt and interest payment ratios have been significantly higher than those of other countries with similar ratings. The press release stated, "While we acknowledge the US's significant strengths in economic and financial terms, these strengths are not enough to fully offset the deterioration in fiscal indicators."

In recent years, the US annual fiscal deficit has approached $2 trillion, accounting for over 6% of GDP. Against the backdrop of a potential economic slowdown caused by the ongoing global tariff war, the softening of US growth may further push up the federal government's deficit, as government spending typically rises during economic slowdowns.

High interest rates in the past few years have also significantly increased the government's debt servicing costs. Since the COVID-19 pandemic, the US government has over-borrowed, leading to an overall debt level that has exceeded the size of the economy.

Earlier, US Treasury Secretary Bentsen also admitted in Congress that "the US is on an unsustainable path, and the debt figures are truly concerning." Bentsen stated that the crisis would lead to "a complete disappearance of credit and a sudden economic stagnation," emphasizing that he would "do everything possible to prevent this from happening."

Meanwhile, the Yale Budget Lab estimates that the new tax bill drafted by the Republicans will increase government debt by $3.4 trillion over the next decade; if all temporary provisions in the bill that were originally scheduled to phase out are extended to 2035, it could result in government debt of up to $5 trillion.

The Yale Budget Lab stated that if these provisions are made permanent, the US debt-to-GDP ratio will reach 200% by 2055.

It should be noted that Moody's is the last of the three major rating agencies to strip the US of its AAA rating. Standard & Poor's had already downgraded the US long-term sovereign credit rating from "AAA" to "AA+" in 2011, a move that was sharply criticized by the US Treasury Department at the time.

Fitch Ratings, on the other hand, removed the US's AAA rating in August 2023, attributing the reason to "frequent debt ceiling negotiation deadlocks in Congress." Fitch had predicted at the time that the US fiscal situation would deteriorate, with federal government debt remaining high and continuing to climb.