America loses last AAA credit rating: What happened and what it means

Moody's has downgraded the US credit rating to AA1 due to rising debt and interest payments, aligning with earlier moves by Fitch and S&P over fiscal and political concerns

Moody’s Ratings on Friday downgraded the credit rating of the United States, stripping the nation of its last remaining perfect AAA status. The downgrade signals a warning to investors and could increase borrowing costs for Americans already grappling with high inflation and persistent tariffs, CNN reported.

 

Moody’s, which had held a perfect credit score for the US since 1917, has now lowered its rating to AA1. This aligns it with Fitch Ratings and S&P, which downgraded US debt in 2023 and 2011, respectively.

 

Why Moody’s made the move

 

In its official statement, Moody’s explained that the downgrade reflects “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns”.

 

 

The agency expects the US government’s borrowing needs to grow even further, placing long-term pressure on the economy.

 

Though Moody’s cut the rating, it assigned a “stable” outlook for now, citing the US Federal Reserve’s historically strong and independent monetary policy. However, that outlook could shift, especially as political pressures mount. US President Donald Trump has previously questioned the independence of the Federal Reserve and threatened to remove its chair, Jerome Powell. 

 

Political blame game follows

 

Reacting to the downgrade, White House spokesperson Kush Desai placed the blame squarely on the Biden administration, saying: “The Trump administration and Republicans are focused on fixing Biden’s mess by slashing the waste, fraud, and abuse in government and passing The One, Big, Beautiful Bill to get our house back in order. If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.”

 

A history of downgrades amid political gridlock

 

Moody’s had already placed the US on downgrade watch in November, pointing to political dysfunction in Washington, including last year’s near-default and the removal of House Speaker Kevin McCarthy.

 

America’s creditworthiness has been under pressure for years, with Fitch citing “fiscal deterioration” and S&P pointing to “political brinkmanship” and weakened governance as reasons for previous downgrades. The US was running a $1.3 trillion deficit in 2011. That figure rose to $1.8 trillion in 2023.

 

While administrations under Presidents Obama and Biden have criticised such downgrades, labelling them “arbitrary” or based on “outdated data”, the rising debt burden and fiscal inaction continue to weigh heavily. 

 

What the downgrade means

 

The downgrade could impact everyday Americans. US Treasury yields, the foundation for everything from mortgage rates to student loans, may rise if investors see lending to the US government as riskier. This means higher costs across the board for borrowing, including homes, cars, and credit cards.

 

Despite the AA1 rating still being strong, it also highlights a shift in how the world views US debt — no longer the unquestioned “safe haven” it once was.

 

Can the US regain its AAA rating?

 

Moody’s made it clear: restoring the top rating will require either a boost in government revenues or a significant cut in spending.

 

The Trump administration is pursuing the latter. The Elon Musk-led Department of Government Efficiency (DOGE) has laid off thousands of federal employees and scaled back operations at agencies like USAID. Trump is also urging Congress to pass his “One Big Beautiful Bill Act”.

 

This sweeping package would permanently extend the 2017 tax cuts, introduce new temporary tax breaks, and implement major spending reductions, especially targeting programmes like Medicaid and food stamps. But experts are sceptical.

 

According to the Committee for a Responsible Federal Budget, the bill would add $3.3 trillion to the national debt over the next decade. Annual deficits are projected to rise from $1.8 trillion in 2024 to $2.9 trillion by 2034, as spending continues to outpace revenue.

 

(With agency inputs)