The credit rating of the United States received a potentially costly downgrade Friday, as the ratings firm Moody's determined that the government's fiscal outlook had deteriorated as a result of rising debt levels and stood to worsen further if Republicans enact a package of new tax cuts.
The downgrade, to one notch below the highest triple-A rating, amounted to a political and economic repudiation of Washington, where President Donald Trump only hours earlier had pushed his party to adopt a sprawling package that might add trillions of dollars to the nation's fiscal imbalance.
The downgrade from Moody's means that each of the three major credit rating agencies no longer gives the United States its best rating. Fitch downgraded the United States in 2023, citing fiscal concerns, and Standard & Poor's downgraded the country in 2011.
"While we recognize the U.S.' significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics," Moody's said in a statement explaining the downgrade.
Moody's pointed to decades of gridlock and dysfunction in the nation's capital. It found that Democrats and Republicans alike had failed to meaningfully curtail rising U.S. debt, which now towers above $36 trillion.
Nor had the U.S. government tended to myriad well-known, and long-term, financial challenges, Moody's said, especially the rising costs and persistent underfunding of programs like Social Security and Medicare.
Moody's lowered the rating from a gold-standard AAA to AAL but said the United States "retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the U.S. dollar as global reserve currency."
It also acknowledged the vast policy uncertainty -- and it obliquely referred to the ways in which political stability and constitutional order can be "tested at times."
"Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," the report from Moody's said. "We do not believe that material multiyear reductions in mandatory spending and deficits will result from current fiscal proposals under consideration."
Extending President Donald Trump's 2017 tax cuts, a priority of the Republican-controlled Congress, Moody's said, would add $4 trillion over the next decade to the federal primary deficit which does not include interest payments.
"We expect federal deficits to widen, reaching nearly 9% of (the U.S. economy) by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation," Moody's continued.
Interest payments coupled with relatively low revenue will add to the debt, along with government spending on programs such as Social Security and Medicare.
Still, even with the lower assessments from the rating agencies, investors are likely to snap up the U.S. government's debt. That's a reflection of the dollar's status as the global reserve currency, meaning people from all over the world want to stash their savings in U.S. Treasury bonds even as the government accrues more and more debt.
The White House did not immediately respond to a request for comment.
The Trump administration has said it's endeavoring to lower spending by cutting programs and reducing the federal workforce -- work done in part by the Department Of Government Efficiency office led by billionaire Elon Musk. But the federal debt continues to rise.
Senate Democratic Leader Charles Schumer, N.Y., said in a statement Friday that the downgraded credit rating "should be a wake-up call to Trump and Congressional Republicans to end their reckless pursuit of their deficit-busting tax giveaway."
Moody's ratings can be read as political as well as financial indicators. After newly elected United Kingdom Prime Minister Liz Truss spooked markets and the public in 2022 with an aggressive economic plan to increase borrowing while cutting taxes, the agency cut her country's economic outlook from "stable" to "negative." Truss resigned days later, making her six-week term the shortest in British history.
The Committee for a Responsible Federal Budget drew a comparison to Truss earlier in the day Friday, publishing a piece about the budget bill titled "America's Truss Moment?"
The decision from Moody's comes as Republicans struggle to agree on a fiscal package cutting taxes and reducing spending, with the effort briefly stalling Friday as some hard-right conservatives demanded steeper spending cuts. It became clear that the Republican tax proposal emerging in the House of Representatives would add more than $2.5 trillion to the federal deficit over the next decade, according to nonpartisan estimates and budget experts.
Including discussed plans by the House Ways and Means Committee, the official cost of the bill is likely to amount to more than $2.5 trillion -- and as much as $3.3 trillion, counting the interest owed on new debt, according to Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a Washington-based think tank.
Even with cuts to Medicaid and food stamps that could strip benefits from millions of poorer Americans, Republicans are not expected to cover anywhere near the $3.8 trillion cost of the tax cut they have prepared. The Trump administration's blitz to fire much of the federal workforce and unilaterally withhold spending has also not generated significant savings.
Information for this article was contributed by Tony Romm and Andrew Duehren of The New York Times, Paul Wieseman of The Associated Press and by Rachel Lerman of The Washington Post.