Moody’s Downgrades U.S. Credit Rating, Citing Soaring Interest Rates, Leadership Dysfunction

In a worrying development for the largest economy in the world, Moody’s assessments have downgraded the sovereign credit note from the United States from AAA to AA1 on Friday, erasing the last bastion of the country’s high-level budgetary credibility.

The decision, announced as closed markets on Friday, completes a trifecta of demotations among the main rating agencies, after Standard & Poor’s in 2011 and Fitch Ratings in 2023. With a federal debt of 36 billions of dollars, the creation of a long shadow, the Moody’s has pointed out a digid cost of interest, balloon lines and Paralyzed congress by the supporter.

“The United States retains exceptional credit points,” said Moody’s, citing “the size, resilience and dynamism of its economy and the role of the US dollar as a global reserve currency”.

However, these advantages are not suitable for brewing tax storms. The agency provides that federal deficits going to almost 9% of GDP by 2035, compared to 6.4% in 2024, fueled by “an increase in interest payments on debt, an increase in rights expenditure and a relatively low generation of income”. The debt / GDP ratio, already 98% last year, is expected to reach 134% by 2035, a considerable Moody’s trajectory.

The demotion landed as a thunderclap in a capital already in shock from political disorders. A few hours earlier, the House Republicans watched their flagship tax and expenditure pack, the “Big Beautiful Bill Act”, implodes in the Budget Committee. Voting 16-21 revealed fractures within the GOP and the hardened democratic opposition, offering a lively snapshot of the Moody’s grid.

The bill, a paving stone of the economic agenda of President Donald Trump, sought to consolidate the tax discounts of 2017, exempt councils, overtime and some tax loans, and increase the standard deduction to $ 32,000 for joint declarations. He also suspended a temporary increase of $ 500 to children’s tax credit, which brought him to $ 2,500, while channeling $ 350 billion with deportation efforts and the priorities of the Pentagon.

But the aggressive expenses of the package, reducing more than 1 dollars of health care and food aid for a decade, triggered the controversy. Work requirements proposed for Medicaid, demanding 80 hours of monthly work and expanded Snap restrictions for children aged 55 to 64 have attracted fierce repression.

Five GOP rebels, led by the representatives, Chip Roy of Texas and Ralph Norman from South Carolina, joined the Democrats to sink the bill, demanding higher reductions in Medicaid, immediate reforms of social assistance and the suppression of green energy tax credits from the Biden era. New York Republicans, on the other hand, called for a stronger and local tax deduction, with $ 62,000 for unique declarants and $ 124,000 for joint declarants compared to the $ 30,000 ceiling for the invoice for joint declarants earning up to $ 400,000.

Democrats have jumped, marking legislation a betrayal of vulnerable. “It’s a great and beautiful betrayal,” said representative Pramila Jayapal, a progressive brandard.

Kentucky Morgan McGarvey representative warned against closed nursing homes, closed hospitals and hungry children, citing the congress budget office estimates that the bill would exceed health insurance for 7.6 million people and reduce 3 million monthly Snap beneficiaries. The defeat, took place in real time on Capitol Hill, exposed the Moody’s dysfunction reported as a central driver of degradation.

Moody’s has not chopped words on the budgetary benefits of current policies. The extension of Trump 2017 tax reductions, a higher republican objective, would stack 4 additional dollars on the primary deficit during the next decade, excluding interest, calculated the agency. This, associated with the reluctance of the Republicans to increase taxes and the resistance of democrats to discounts of spending, left Washington “unable to fight against the enormous deficits of America”, as reported by the Associated Press.

The demotion threatens to take borrowing costs for the government, which has potentially struck consumers struggling with mortgages, car loans and credit card debt.

“This demotion is part of a long trend in budgetary irresponsibility,” said Spencer Hakimian, CEO of Tolou Capital Management, predicting higher costs for the public and private sectors.

Jay Hatfield, CEO of Capital Advisors infrastructure, provided for market agitation, especially as Trump’s pricing policies – arouses fears of inflation and slowdown – compatible vulnerabilities. However, Hakimian noted that the safe status of the US dollar could cap the cash peops.

Moody’s has maintained a stable perspective, a nod to the economic weight of the United States and the world domination of the dollar. But the warning panels are undoubtedly.

“This demotion adds to the proof that the United States has too many debts,” said Darrell Duffie, professor of finance at Stanford and former member of the board of directors of Moody. “Congress must either obtain more income or spend less.”

The announcement sparked a wave of reactions, each tinged with political rotation. Stephen Moore, economist of the heritage foundation and former Trump advisor, denounced the downgrading as “scandalous”, asking: “If the American government obligations are not a triple-a asset, then what is it?”

The Director of Communications of the White House, Steven Cheung, took a blow to the economist of Moody, Mark Zandi, alluding to the partisan reasons. The Senate Democrat chief Chuck Schumer described this as “awakening” so that the Republicans abandon their “tax gift to duplication”, adding dryly: “I do not remember my breath”.

The Verdict de Moody highlights a warning of economists that without correction of the course, the burden of the debt of America risks becoming an anchor, causing an economy still supported by its world weight but increasingly tested by its own divisions.