# Moody's cuts U.S. credit rating to Aa1
Event date: 2025-05-16
Moody's Ratings has stripped the United States of its last top-tier credit grade, downgrading the government one notch from Aaa to Aa1. In the supplied USA Today report, the agency said rising debt and interest payment ratios were significantly higher than those of similarly rated sovereigns. The move leaves the U.S. without a top grade from any of the major rating agencies and turns long-running warnings about fiscal discipline into a formal ratings action.
Moody's said successive administrations and Congress had failed to agree on measures that would reverse large annual deficits and growing interest costs. The agency also said fiscal performance was likely to deteriorate relative to the country's own past and compared with other highly rated sovereigns. The report adds that the outlook was changed to stable from negative, which suggests Moody's sees balance in the near term even as it judges the long-term direction as weaker.
The downgrade sits inside a broader history of similar warnings. Fitch downgraded the U.S. to AA+ in 2023, and Standard & Poor's cut the country in 2011. What makes the Moody's decision notable is that it removes the final Aaa seal of approval from the federal government. That change is symbolically important because ratings are watched by investors, lenders and public officials, even when they do not trigger immediate market stress.
The report cites continuous fiscal deficits, higher federal spending and lower revenue from tax cuts as the forces behind a sharp rise in federal debt. It also points to the latest GOP tax bill draft, which Moody's said could add about $4 trillion to the federal primary deficit over the next decade. The agency does not believe the proposal would produce material multi-year reductions in mandatory spending and deficits. It expects deficits to widen from 6.4% of GDP in 2024 to 9% by 2035 as interest payments rise and entitlement spending grows.
Still, Moody's did not present the United States as a weak borrower in any absolute sense. The agency said the country retains exceptional credit strengths, including the size, resilience and dynamism of its economy and the role of the dollar as the global reserve currency. It also said the Federal Reserve remains an independent and effective central bank. Those strengths help explain why the move is a downgrade rather than a crisis. Yet Moody's also warned that borrowing costs could rise over time if investors demand more compensation for the government's debt load. That could flow through to Treasury yields, mortgages and corporate borrowing, even if the immediate market reaction is muted.
For households and borrowers, the downgrade is less about an immediate shock than about the steady cost of carrying more debt. Moody's warning that Treasury yields could rise over time matters because even small rate moves can affect mortgages, corporate funding and public borrowing. The agency is not predicting a funding crisis. It is saying the political system has not yet shown that it can slow the debt trajectory enough to preserve the country's strongest rating.
