Moody's Downgrades U.S. Credit Rating – Background and Implications
International credit rating agency Moody’s downgraded the U.S. sovereign credit rating by one notch. This significant warning, stemming from deteriorating fiscal health, is expected to ripple through the global financial market. Here’s a comprehensive breakdown of the reasons and future outlook.
📉 Key Reasons for the Downgrade
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Surge in Government Debt and Interest Burden
Moody’s stated that “over the past decade, the U.S. federal government’s debt and interest payment burden have risen significantly more than other countries with similar ratings.” Tax cuts and rising interest rates were highlighted as the main accelerators of this trend. -
Rigid Fiscal Spending Structure
As of 2024, mandatory spending accounts for 73% of total U.S. federal expenditure, projected to rise to 78% by 2035. This indicates a sharp decline in the government’s discretionary spending flexibility. -
Outlook for Worsening Long-Term Fiscal Health
Over the next 10 years, the U.S. is expected to face ongoing increases in deficits, national debt, and interest payments. The expansion of entitlement programs like Social Security and Medicare, coupled with stagnant tax revenue, will further strain fiscal sustainability.
💰 U.S. National Debt Status
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As of 2025, the U.S. national debt stands at $36.22 trillion, surpassing 100% of GDP
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Debt has increased by about $3.9 trillion in the last two years
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FY2024 budget deficit: approximately $1.83 trillion
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2024 interest payments: about $870 billion, exceeding the $850 billion defense budget
📊 Comparison of Credit Rating Downgrades by Agencies
| Rating Agency | Date of Downgrade | Before | After | Note |
|---|---|---|---|---|
| Moody’s | 2025.05 | Aaa | Aa1 | Last downgrade among the Big Three |
| Fitch | 2023.08 | AAA | AA+ | |
| Standard & Poor’s | 2011.08 | AAA | AA+ |
🌐 Market and Policy Implications
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Increased Pressure on U.S. Fiscal Management
The downgrade narrows the room for the U.S. government to operate flexibly across budget and tax policies. Structural reform or tax hikes may become unavoidable. -
Impact on Treasury Markets and Global Economy
Reduced confidence in U.S. Treasuries could lead to higher yields and increased borrowing costs globally. However, some expect short-term market shock to be limited. -
Political and Structural Challenges
Partisan gridlock and delays in structural reform remain major obstacles to fiscal improvement. Resistance to changes in entitlement programs will likely intensify.
📝 Summary
Moody’s downgrade signals a serious warning about the U.S.’s fiscal imbalances and structural issues. A combination of rising debt, interest rates, entitlement spending, and political paralysis has driven this outcome. The U.S. government now faces a critical need for medium- to long-term measures to restore fiscal health. Further downgrades cannot be ruled out.
📚 References
[1] https://www.yna.co.kr/view/AKR20250517008252072
[2] https://www.foxbusiness.com/economy/moodys-downgrades-us-credit-rating-over-rising-debt
[3] https://news.kbs.co.kr/news/view.do?ncd=8256273
[4] https://seo.goover.ai/report/202504/go-public-report-ko-331cf068-136e-424f-b755-97bf1c0bf276-0-0.html
[5] http://www.minplusnews.com/news/articleView.html?idxno=14929
[6] https://www.yna.co.kr/view/AKR20250517008253072
[7] https://www.morningstar.com/news/marketwatch/20250516486/us-loses-final-triple-a-credit-rating-market-reaction-uncertain-but-its-not-good-news
[8] https://www.g-enews.com/article/Global-Biz/2025/05/202505170604574163bc914ac71_1
