Moody’s Edges Closer to U.S. Credit Rating Downgrade Amid Fiscal Concerns

Moody’s Investors Service warned this week that the United States moves closer to losing its prestigious AAA credit rating. The agency cited growing concerns about tariff impacts, expanding fiscal deficits, and the nation’s declining ability to service its mounting debt burden.

The credit rating agency now forecasts US budget deficits to increase by approximately one-third over the next decade. Deficits could reach 8.5% of GDP, dramatically up from the current 6.3%.

These projections reflect a significant deterioration since Moody’s previous assessments. Proposed tariff policies pose substantial risks to economic growth. Moody’s analysts emphasize that tariffs would hamper business investment and reduce consumer confidence.

These trade policies could also restrict the Federal Reserve’s ability to implement necessary interest rate reductions. Recent fiscal data validates these concerns. The federal government recorded a $307 billion deficit in February 2025 alone.

The cumulative deficit for fiscal year 2025 has already reached $1.147 trillion through just five months. “We see diminished prospects that America’s economic strengths will continue to offset growing fiscal deficits,” stated Moody’s in its announcement.

The agency previously downgraded its outlook to negative in 2023 but maintained the AAA rating. Both Standard & Poor’s and Fitch Ratings have already downgraded the United States to AA+.

S&P acted first in 2011, while Fitch followed more recently. Moody’s remains the last major agency maintaining America’s top-tier rating. Economists project serious consequences if tariffs proceed as proposed.

Rising US Debt and Economic Risks

The Tax Foundation estimates potential GDP reduction of 0.65 percent and nearly 600,000 job losses. Consumer prices could rise 1.0-1.2%, costing average households between $1,600-2,000 annually.

The US debt-to-GDP ratio will likely climb from approximately 100% today to 130% by 2035. Interest payments could eventually consume 30% of federal revenue, creating an unsustainable fiscal trajectory.

America’s unique position as issuer of the world’s reserve currency has historically buffered these concerns. Foreign demand for Treasury securities typically remains strong regardless of domestic fiscal conditions. This advantage appears increasingly insufficient to counterbalance growing structural problems.

Political polarization further complicates efforts to address these fiscal challenges. Policymakers struggle to build consensus around meaningful deficit reduction strategies. The growing debt burden threatens long-term economic stability and global financial leadership.

Markets continue to monitor these developments closely. A Moody’s downgrade would represent the final major rating agency confirmation of America’s fiscal deterioration. Borrowing costs across the economy could rise in response, affecting everything from mortgage rates to business loans.