By Matt Wirz and Sam Goldfarb
The U.S. has lost its last triple-A credit rating.
Moody's Ratings downgraded the U.S. government on Friday, citing large fiscal deficits and rising interest costs.
Expanding budget deficits mean U.S. government borrowing will rise at an accelerating rate, pushing interest rates up over the long term, Moody's said. The firm said Friday that it didn't believe that any current budget proposals under consideration by lawmakers would do anything significant to reduce the persistent gap between government spending and revenues.
The move strips the U.S. of its last remaining triple-A credit rating from a major ratings firm, following similar cuts by Fitch Ratings in 2023 and S&P Global Ratings in 2011. Moody's downgraded the U.S. to Aa1, a rating also held by Austria and Finland.
"Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's wrote in a statement.
At the margin, the downgrade could put pressure on the market for U.S. Treasurys, which has already been hit by expectations for greater borrowing and stubbornly high inflation.
Treasurys, however, rallied after S&P's 2011 downgrade, in part because the economy was weak, demonstrating that investors still considered the U.S. the world's safest bet. Few expect the Moody's downgrade to spur market turmoil this time. The U.S. remains the world's largest economy and the benchmark against which other countries are measured.
But some investors said the downgrade could exacerbate the damage the recent trade war has done to that exceptional position. And that might compel global investors to lift the premium they demand to buy U.S. debt.
"That could generate an even bigger deficit because the cost of servicing our debt would also go up," said Michael Goosay, global head of fixed income at Principal Asset Management.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
May 16, 2025 17:54 ET (21:54 GMT)
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