On May 17, the Financial Association reported (Editor Zhao Hao) that on Friday (May 16), Moody's, one of the three major international credit rating agencies, announced on its official website that due to the increase in U.S. government debt and interest payment ratios, it has decided to downgrade the U.S. sovereign credit rating from Aaa to Aa1.
Moody's stated that for more than a decade, the growth rate of U.S. government debt and interest payments has been significantly higher than that of other countries with similar ratings. The press release stated, "While we acknowledge that the U.S. has significant advantages in economic and financial aspects, these advantages are no longer sufficient to fully offset the deterioration of fiscal indicators."
In recent years, the U.S. annual fiscal deficit has approached $2 trillion, accounting for more than 6% of GDP. Against the backdrop of a global tariff war that may lead to economic slowdown, the softening of U.S. growth could further increase the federal government deficit, as government spending typically rises during economic slowdowns.
The high interest rates in recent years have also significantly increased the government's debt servicing costs. Since the COVID-19 pandemic, the U.S. government has excessively borrowed, leading to an overall debt level exceeding the total economy.
Previously, U.S. Treasury Secretary Basent also acknowledged in Congress that "the U.S. is on an unsustainable path, and the debt figures are indeed concerning." Basent stated that the crisis would lead to "a complete disappearance of credit and a sudden halt in the economy," emphasizing that he would "do everything possible to prevent this from happening."
Meanwhile, the Yale Budget Lab estimates that the new tax bill drafted by the Republicans will increase government debt by $3.4 trillion over the next decade; if the temporary provisions originally set to phase out are extended to 2035, it could result in up to $5 trillion in government debt.
The Yale Budget Lab indicates that if these provisions are made permanent, the U.S. debt-to-GDP ratio will reach 200% by 2055.
It should be noted that Moody's was the last of the three major rating agencies to strip the U.S. of its AAA rating. S&P downgraded the U.S. long-term sovereign credit rating from "AAA" to "AA+" as early as 2011, which drew severe criticism from the U.S. Treasury.
Fitch, on the other hand, downgraded the U.S. to AAA in August 2023, attributing the decision to the "frequent deadlock in debt ceiling negotiations in Congress." Fitch at the time expected the U.S. fiscal situation to worsen, with federal government debt remaining high and continuously rising.