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Moody's Downgrades US Credit Rating Amid Concerns Over Growing Debt and Interest Costs

Strategic Insights

— 2 min read

The Moody's rating agency last week downgraded the United States' credit rating from Aaa to Aa1, citing concerns over its massive $36 trillion debt pile and rising interest costs. This move marked the first time Moody's has lowered Washington's credit score since 1949 and sent ripples through financial markets. The US government's credit rating has been under scrutiny for its inability to manage large annual fiscal deficits and growing interest costs. Moody's specifically pointed out that successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.

Key Takeaways:

  • Moody's downgraded the US credit rating from Aaa to Aa1, citing rising debt and interest costs.
  • The US government's debt has grown by about $1 trillion every three months, with 16 percent of tax revenues used to cover debt interest payments this year.
  • Moody's expects the US federal deficit to widen to 9 percent of GDP by 2035, up from 6.4 percent in 2024, driven mainly by increased interest payments on debt.
  • The federal debt burden will rise to 134 percent of GDP by 2035, compared with 98 percent in 2024.
  • President Trump has said he would balance the budget, but his attempts to cut spending through Elon Musk's Department of Government Efficiency have fallen short of initial goals.
  • Moody's recent downgrade came as a bill to prolong tax cuts introduced in 2017 failed to clear a procedural hurdle, with Republicans in the House of Representatives demanding deeper spending cuts.
  • Senate Democratic leader Chuck Schumer called the downgrade a "wake-up call" for Trump and congressional Republicans to end their "reckless pursuit of their deficit-busting tax giveaway."
  • The downgrade led to a jump in bond yields, with 10-year yields rose to more than 4.5 percent, which could raise interest rates on mortgages, car loans, and credit card debt.
  • Lower credit ratings typically lead to higher bond yields, which will raise interest rates on various types of debt, affecting Americans who are among the most highly indebted people in the world.

Statistics:

  • The US government's debt is $36 trillion, with 16 percent of tax revenues used to cover debt interest payments this year.
  • The federal deficit is expected to widen to 9 percent of GDP by 2035.
  • The federal debt burden will rise to 134 percent of GDP by 2035.
  • US household debt relative to GDP clocked in at 73 percent in 2023.
  • The International Monetary Fund reported that Switzerland, Australia, and Canada have household debt-to-GDP ratios in excess of 100 percent.

Sources:

  • "The US has $36 trillion in debt: What does that mean, and who owns it?" by Al Jazeera (May 20, 2025)
  • "US Treasury data: 16% of tax revenues used to cover debt interest payments this year" by Al Jazeera (May 15, 2025)
  • "Moody's downgrades US credit rating, citing debt and interest costs" by Al Jazeera (May 20, 2025)
  • "Fiscal data: US government's debt burden rising to 134% of GDP by 2035" by Al Jazeera (May 15, 2025)
  • "Trump's big, beautiful bill at a crucial juncture" by Al Jazeera (May 16, 2025)
  • "Moody's expected US federal deficit to widen to 9% of GDP by 2035" by Al Jazeera (May 20, 2025)

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