Moody’s Downgrade Highlights Concerns Over US Debt
(MENAFN) The United States has now lost its top-tier credit standing from all three principal rating agencies, with Moody’s lowering its evaluation due to escalating public debt and a growing fiscal shortfall.
This deterioration is anticipated to aggravate conditions in the bond market.
Moody’s revised the nation’s long-term credit grade from “AAA” to “Aa1” and shifted its forecast from “negative” to “stable.”
According to Moody’s, the downgrade "reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns."
This indicates a prolonged rise in debt obligations and related costs that now surpass what is typically seen in other nations with comparable ratings.
The agency further explained, “The stable outlook also takes into account institutional features, including the constitutional separation of powers among the three branches of government that contributes to policy effectiveness over time and is relatively insensitive to events over a short period. While these institutional arrangements can be tested at times, we expect them to remain strong and resilient.”
This assessment suggests confidence in the enduring strength of U.S. governance mechanisms, despite occasional political turbulence.
Moody’s cautioned that federal income is likely to remain relatively unchanged in the coming decade, while the fiscal gap is projected to expand.
Without meaningful reforms in tax policy or expenditure control, obligatory spending—which represented around 73 percent of all government outlays in 2024—is expected to climb to roughly 78 percent by 2035.
This figure includes interest payments. If the 2017 tax reductions are prolonged, the fiscal imbalance could grow by nearly USD4 trillion over ten years.
Currently, the annual gap between federal income and spending stands at approximately USD2 trillion, surpassing 6 percent of the nation’s economic output.
For the fiscal year that began on October 1, the shortfall has already reached USD1.05 trillion, marking a 13 percent increase compared to the previous year.
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