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Investing.com -- Moody’s Ratings downgraded the long-term issuer and senior unsecured ratings of the United States from Aaa to Aa1 on Friday, citing a sustained deterioration in fiscal metrics. The credit outlook was shifted from negative to stable, reflecting ongoing institutional strength and the enduring role of the dollar in global finance.

The one-notch downgrade marks a significant departure for the U.S., which has held the agency’s top credit rating for decades. Moody’s said the mounting government debt and interest payments, now materially above peers in the same rating tier, drove the decision.

“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” the agency said in a release. Even under current fiscal proposals, Moody’s said it does not expect “material multi-year reductions in mandatory spending and deficits.”

According to the agency, federal deficits are forecast to reach 9% of GDP by 2035, up from 6.4% in 2024, while debt is projected to rise to 134% of GDP in that timeframe. Interest payments could absorb as much as 30% of federal revenue by the same year, triple the 2021 level.

Still, Moody’s emphasized that the downgrade is not a reflection of diminished confidence in U.S. institutions or the Federal Reserve’s monetary policy framework. “The US retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency,” it noted.

Although fiscal challenges weigh on the sovereign’s credit profile, Moody’s believes the risk of acute funding stress remains low due to enduring investor demand for U.S. Treasuries. Any upgrade from Aa1, it said, would depend on “fiscal reforms to significantly slow and eventually reverse the deterioration in debt affordability and deficits.”

The downgrade comes at a critical time, as Republicans face opposition, both internally and externally, in passing U.S. President Donald Trump’s "big, beautiful bill."

Moody’s is now the final major agency to lower the country’s credit rating. Fitch downgraded the United States in August 2023, citing "expected fiscal deterioration," and S&P Global Ratings downgraded in 2011, emphasizing stability and predictability concerns.

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