Moody's strips US govt of top credit rating over failure to rein in debt

Moody's Ratings stripped the US government of its top credit rating Friday, citing successive governments' failure to stop a rising tide of debt.

Moody's lowered the rating from a gold-standard Aaa to Aa1 but said the United States "retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency.'  Moody's is the last of the three major rating agencies to lower the federal government's credit. Standard & Poor's downgraded federal debt in 2011 and Fitch Ratings followed in 2023.

In a statement, Moody's said: "We expect federal deficits to widen, reaching nearly 9 per cent of (the US economy) by 2035, up from 6.4 per cent in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.'  Extending President Donald Trump's 2017 tax cuts, a priority of the Republican-controlled Congress, Moody's said, would add $4 trillion over the next decade to the federal primary deficit (which does not include interest payments).

A gridlocked political system has been unable to tackle America's huge deficits. Republicans reject tax increases, and Democrats are reluctant to cut spending.

On Friday, House Republicans failed to push a big package of tax breaks and spending cuts through the Budget Committee. A small group of hard-right Republican lawmakers, insisting on steeper cuts to Medicaid and President Joe Biden's green energy tax breaks, joined all Democrats in opposing it.