Moody's, one of the leading credit rating agencies, recently made a significant decision to downgrade the credit rating of the United States government from Aaa to Aa1. The primary reason cited for this downgrade was the continuous rise in the national debt, which has been a growing concern for the country's economic stability.

In its announcement on May 16, Moody's pointed out that US lawmakers have been unable to effectively address the annual deficits or reduce spending, leading to a ballooning national debt. The agency expressed skepticism about the current fiscal proposals' ability to result in substantial multi-year reductions in mandatory spending and deficits. It anticipates larger deficits in the next decade, with entitlement spending on the rise while government revenue remains stagnant.

Despite the credit downgrade, Moody's maintained a positive long-term outlook for the United States, highlighting the country's robust economy and the status of the US dollar as the global reserve currency as key strengths that balance out the lending risks.

The market reaction to Moody's revision of the US credit outlook has been mixed. Some investors and market participants expressed skepticism about the agency's assessment. Gabor Gurbacs, the CEO of Pointsville, a crypto loyalty rewards company, criticized Moody's track record during financial crises and viewed the outlook as overly optimistic.

On the other hand, macroeconomic investor Jim Bianco downplayed the significance of the credit downgrade, suggesting that it does not reflect a real deterioration in the perception of US government creditworthiness and labeled it a "nothing burger."

The rising US government debt, which surpassed $36 trillion in January 2025, has been a cause for concern among investors. Recent efforts by figures like Elon Musk to reduce federal spending and curb the national debt have not been sufficient to slow down the debt accumulation. The mounting debt has led to a spike in interest rates on the 30-year US Treasury Bond, indicating a decrease in long-term investor confidence in US debt securities.

As the national debt continues to climb and investor faith in US government securities wanes, bond yields are expected to increase. This will result in higher debt service payments, further exacerbating the national debt problem. To attract investors, the government may be forced to offer increasingly higher yields, perpetuating a cycle of escalating debt.

In conclusion, Moody's downgrade of the US credit rating underscores the urgent need for the country to address its fiscal challenges and reign in the national debt to maintain its economic stability and credibility in the global financial markets.

Source: https://cointelegraph.com/news/moodys-downgrades-us-credit-rating?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound