Moody's Ratings has lowered its outlook on the U.S. government's financial strength, citing growing budget deficits, mounting debt, and concerns about potential fiscal policy changes.
The United States government's financial stability is on a declining trajectory as budget deficits expand and national debt continues to accumulate, according to a report released Tuesday by Moody's Ratings. The agency noted that America's fiscal health has deteriorated since it downgraded its outlook on the nation's AAA credit rating in November 2023. This action follows similar downgrades by Fitch and Standard and Poor's, who lowered the U.S.
credit rating to AA+ in 2023 and AA- in 2011, respectively, citing fiscal challenges and heightened debt limit concerns. While Moody's remains the last major ratings agency to keep U.S. sovereign debt at its highest level, it expressed a more pessimistic view of the government's debt situation in 2023 due to widening annual deficits and escalating interest payments on the national debt. The agency outlined a concerning projection: the ratio of public debt to gross domestic product (GDP) is anticipated to rise from nearly 100% in 2025 to approximately 130% by 2035. This trend underscores the growing burden of debt on the U.S. economy. Further compounding the issue is the projected increase in interest payments, which are expected to consume 30% of government revenue by 2035, a stark jump from 9% in 2021. Such a rise would significantly strain the federal budget. Moody's emphasized that the diminished debt affordability in the United States highlights the crucial role played by the dollar and the Treasury market in global financial markets, as these institutions support the country's AAA rating. However,Moody's cautions that potential changes in fiscal policy could jeopardize this outlook. The agency points to the Trump administration and congressional Republicans' pursuit of a tax cut package that would extend expiring 2017 tax cuts and potentially exacerbate the deficit unless accompanied by significant spending reductions. This fiscal maneuvering raises concerns about the government's long-term financial sustainability. The report also touches upon the difficulty of implementing large-scale spending cuts due to the need for bipartisan consensus and the resistance from both Republicans and Democrats to altering mandatory spending programs such as Social Security and Medicare. Additionally, while tariffs could initially boost government revenue, Moody's warns that persistently high tariffs could ultimately hinder economic growth, negating their positive impact on government finances
Moody's US Debt Credit Rating Fiscal Policy Deficit Economic Outlook
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