The US government has been spending more than it takes in, resulting in ever-rising debt. Moody’s decision to downgrade the country’s credit rating on Friday highlights this precarious fiscal situation. The downgrade indicates that policymakers may have less room for maneuver during future recessions or crises due to the massive existing debt pile.
The move signals the end of an era where the US government could borrow seemingly limitless amounts without facing higher interest rates and inflation. This change will impact how much companies, municipalities, and sovereign nations must pay to borrow money, as ratings from firms like Moody’s help determine borrowing costs.
The downgrade also suggests that investors may demand higher interest payments for government bonds, which would increase borrowing costs across the economy. However, the direct impact on markets was limited due to most buyers of Treasury bonds not relying on credit rating firms’ assessments.
Congressional Republicans are moving forward with a plan for major tax cuts, which independent fiscal watchdogs believe would increase the deficit by trillions over the coming decade. The new budget bill arrives at a moment of higher debt and interest rates, amid global investors’ concerns about US assets due to the trade war.
White House officials argue that they inherited high deficits from the Biden administration and aim to bring them down with deregulation, tariffs, and spending cuts. However, the market reaction suggests that the government deficit is becoming increasingly seen as a problem by investors.
Analysts note that the downgrade is largely symbolic but highlights the growing concerns about US debt. It comes at a time of high policy uncertainty around long-term Treasuries and when the world is questioning the safety of US assets due to the trade war.
Source: https://www.axios.com/2025/05/19/moodys-credit-rating-us-debt-reason