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Moody's Downgrades US Credit Rating Amid Fiscal Worries and Trump's Tax Cuts

Strategic Insights

— 2 min read

As the Republicans' One, Big, Beautiful Bill inches closer to passage in Congress, Moody's has cut America's credit rating, from AAA to Aa1, citing concerns over the country's persistently large fiscal deficits. This downgrade comes as the US government's debt balloons to $36.2 trillion, a staggering increase from $20 trillion when Donald Trump took office in 2017.

The One, Big, Beautiful Bill, a tax cut and spending package championed by the Trump administration, proposes to extend the 2017 tax cuts, create "MAGA" accounts for newborn babies, and increase deductions for social security recipients, among other measures. The bill's proponents claim it will boost the economy, but critics argue it will exacerbate income inequality and worsen the country's fiscal woes.

Moody's warning comes as the Congressional Budget Office (CBO) estimates that the bill would increase annual deficits from $1.9 trillion to $2.9 trillion by 2034, or 6.9% of GDP. Debt would surge to 125% of GDP, up from 98% in 2024. The CBO also notes that if some measures become permanent, the deficit would rise to 7.8% of GDP by 2034, or $3.3 trillion.

Key Takeaways:

  • Moody's downgraded the US credit rating to Aa1, citing concerns over persistent large fiscal deficits and rising debt.
  • The US government's debt has ballooned to $36.2 trillion, a 78% increase since Donald Trump took office.
  • The One, Big, Beautiful Bill proposes to extend tax cuts, create "MAGA" accounts, and increase deductions for social security recipients.
  • The CBO estimates that the bill would increase annual deficits from $1.9 trillion to $2.9 trillion by 2034, or 6.9% of GDP.
  • Debt would surge to 125% of GDP, up from 98% in 2024, with potential interest costs rising to $1.8 trillion to $1.9 trillion annually.
  • Moody's rated the US a stable outlook due to the country's effective monetary policy, constitutional separation of powers, and unique status as the world's dominant reserve currency provider.
  • However, the current administration's departure from traditional fiscal policy and aggressive trade stance undermine these attributes.

Statistics:

  • Moody's downgraded the US credit rating to Aa1.
  • The US government's debt has increased from $20 trillion in 2017 to $36.2 trillion in 2024.
  • The CBO estimates that the One, Big, Beautiful Bill would increase annual deficits from $1.9 trillion to $2.9 trillion by 2034.
  • Debt would surge to 125% of GDP, up from 98% in 2024.
  • Potential interest costs would rise to $1.8 trillion to $1.9 trillion annually.
  • The US dollar has depreciated by more than 8% against a basket of its major trading partners' currencies since Trump's trade policies began.

Sources:

  • Moody's credit rating downgrade, [article not provided].
  • S'P Global (formerly Standard ' Poor’s) rating downgrade in 2011.
  • Fitch rating downgrade in 2023.
  • Congressional Budget Office (CBO) projections for US debt and deficits.
  • The One, Big, Beautiful Bill proposals and CBO estimates.
  • Press conference with US Treasury Secretary Scott Bessent.
  • American Thinker, A Wall Street Journal opinion piece, [source not provided].

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