US Credit Rating Downgraded Amid Debt Concerns and Tax Legislation Debate

Washington, D.C. — Concerns about increasing U.S. debt grew Friday after Moody's downgraded the country’s credit rating from AAA to Aa1. This historic decision comes as the Trump administration pushes its controversial tax cuts for corporations and wealthy Americans.

The downgrade, announced after the stock market closed, marks the first instance where the U.S. lacks a top rating from the three major agencies. Moody’s cited a decline in fiscal metrics despite acknowledging the U.S.’s economic strengths.

Moody’s predicts that annual federal deficits could climb to 9 percent of GDP by 2035, up from 6.4 percent last year. Additionally, the agency warned that federal interest payments could absorb around 30 percent of revenue in 2035, compared to 9 percent in 2021.

In a report by the Financial Times, investors expressed concerns over the U.S.’s fiscal trajectory as the nation’s tax legislation seeks to increase debt significantly. The downgrade led to immediate impacts in financial markets, raising the yield on 30-year Treasury bonds and diminishing the value of the dollar.

Experts drew parallels to a crisis following the U.K.’s tax cuts in 2022, further amplifying market apprehensions. Hedge fund billionaire Ray Dalio highlighted the rising risks associated with U.S. debt, cautioning that potential downturns were not being factored into credit evaluations.

Jamie Dimon, CEO of JP Morgan, emphasized that financial markets may be underestimating the impact of an economic downturn, stating that current credit conditions pose significant risks.

Phillip Swagel, head of the Congressional Budget Office, noted a potential tipping point for foreign investors wary of U.S. assets, reflecting a broader trend of decreased financial confidence in the U.S. economy.

Nicolas Trindale from Axa labeled the downgrade as a wake-up call for the U.S. Congress, stressing that the country should not take its financial advantages for granted.

Comments from Yesha Yadav, a professor at Vanderbilt Law School, indicated that the Moody’s downgrade underscores the urgency for effective reform in government debt management, as policymakers must prioritize retaining the U.S. credit’s status as a global benchmark.

The ongoing issues surrounding U.S. debt arise from decades of financial and military spending, with calls for reform often correlating with higher stakes for working-class populations in America. This landscape poses challenges for future fiscal policy and economic stability.