The U.S. 🇺🇸 now loses its last AAA rating as Moody’s, for the 1ST time ever, cuts the U.S. sovereign credit rating to Aa1—following Fitch’s d/g in 2023 & S&P’s in 2011.
Moody’s cites rising debt—projected to reach 134% of GDP by 2035—growing interest costs, and persistent… https://t.co/EIO4cs78wU pic.twitter.com/2I6oXmeRlE
— Wall St Engine (@wallstengine) May 16, 2025
Holy. Shit.
*MOODY’S DOWNGRADES US CREDIT RATING FOR FIRST TIME IN HISTORY
They project US federal deficits will reach 9% of GDP inside the next decade.
The “Freedom Caucus” and fiscal hawks in Congress just got some big ammunition. pic.twitter.com/D9IpQ8PMDB
— Geiger Capital (@Geiger_Capital) May 16, 2025
Moody’s has stripped the U.S. of its last AAA credit rating, downgrading sovereign debt to Aa1 for the first time in history. The downgrade follows Fitch’s move in 2023 and S&P’s decision in 2011, cementing growing fears over America’s long-term fiscal health. Moody’s cited rising debt levels, widening deficits, and soaring interest costs as key drivers behind its decision, forecasting that federal debt will reach 134 percent of GDP by 2035.
Financial markets are expected to react swiftly. With the U.S. now considered a greater credit risk, bond yields should rise as investors demand higher returns. As a result, Treasury values are likely to fall, making borrowing more expensive for businesses and the federal government alike. The deeper concern lies within financial institutions that rely on Treasuries for leverage.
Banks, hedge funds, and major investment firms use U.S. government bonds as collateral for loans and liquidity operations. When those bond values drop, these institutions must post additional assets to maintain leverage positions. Those with excessive exposure to Treasury holdings may face funding pressure, forcing them to either sell off assets or restructure balance sheets to stay compliant. If yields spike too sharply, the leverage strain could ripple across financial markets, tightening liquidity and raising borrowing costs industry-wide.
Moody’s flagged persistent deficits as a core problem. The federal shortfall is expected to hit 9 percent of GDP, up from 6.4 percent in 2024, fueled by entitlement spending, revenue shortfalls, and surging interest payments. By 2035, interest alone could absorb 30 percent of federal revenue, limiting Washington’s ability to adjust course without tax hikes or spending cuts.
Despite the downgrade, Moody’s maintained a stable outlook, citing confidence in the Federal Reserve’s independence and the dollar’s status as the global reserve currency. The agency acknowledged that tariffs may slow short-term growth but does not anticipate lasting economic damage.
The downgrade sends a clear signal to policymakers. If deficits continue unchecked, borrowing costs will climb and market confidence could erode further. Financial institutions holding Treasuries as leverage may need to reassess risk exposure, with some facing tough decisions about liquidity and lending strategies. Without meaningful fiscal reform, the risk of further economic instability looms large.
Sources:
https://www.cnbc.com/2025/05/16/us-loses-final-aaa-rating-as-moodys-issues-historic-downgrade
