This marks the first time since 1917 that Moody’s has downgraded the U.S. credit rating. With this move, the world’s largest economy has lost its final perfect credit score, following similar steps taken by Fitch and Standard & Poor’s. It is the first time ever that none of the three major agencies assign the U.S. the highest rating—a move that could increase U.S. borrowing costs and affect the global economy. Moody’s released the announcement moments before Friday’s bond market close, so the full market reaction will only be seen when markets reopen.

Moody’s explained its decision by pointing to Washington’s weak fiscal discipline, enormous deficits, and a steep rise in interest payments on the government debt, which has surged to around $36 trillion this year. The report describes the American political system as paralyzed for at least the past decade and sees no substantial change coming from current policy proposals—especially not from former President Donald Trump’s tax package. Moody’s projects that by 2035, the federal debt will soar to 134% of GDP, up from 98% today.

Trump’s Tax Plan and the Growing Deficit

The downgrade comes amid a Republican push to pass what Trump has dubbed “the beautiful and big law”—a comprehensive legislative package that includes a permanent extension of his first-term tax cuts, additional tax benefits, and sweeping budget cuts in healthcare and welfare. According to the Congressional Budget Office, this would add at least $3.3 trillion to the deficit over the next decade. Although Republican leaders aim to offset some of the cost through cuts to support programs like Medicaid and food stamps, the budget gap is expected to widen.

White House spokesperson Kush Desai blamed Democrats and former President Joe Biden for the downgrade and “for wrecking the economy over the past four years.” He added, “If Moody’s had an ounce of credibility, it wouldn’t have stayed silent during the early stages of fiscal deterioration.” Meanwhile, Senate Democratic Leader Chuck Schumer argued the downgrade should be “a wake-up call for Republicans to stop chasing tax breaks for the ultra-wealthy.”

The White House also criticized economist Mark Zandi from Moody’s, despite the fact that he is not part of the unit responsible for credit ratings. White House spokesperson Steven Cheung called Zandi “a political enemy of Trump” and dismissed his analyses. “Zandi is an Obama advisor and a Clinton donor who has opposed Trump since 2016,” Cheung tweeted. “No one takes his ‘analyses’ seriously. He’s been proven wrong time and again.”

Economic Implications

In 2011, S&P was the first to downgrade the U.S. credit rating, following a fierce battle over the debt ceiling. Fitch followed in 2023. Moody’s had been “the last to hold faith” since 1917—and it has now chosen to downgrade the rating just as Trump returns to the political stage and seeks to revive his tax policies.

The economic impact of the downgrade could manifest in rising yields on U.S. government bonds, thereby increasing the cost of borrowing for the government and pushing up loan costs for the general public. Over the past month, the yield on the 10-year Treasury note has already risen by 0.3%, reaching 4.5%, while the 30-year yield has surpassed 5%. As U.S. bond yields rise, the effects are not confined to the U.S. alone. It influences the borrowing costs of governments worldwide, including Israel, and could trigger a global interest rate hike—harming global growth and emerging markets.

Moody’s Warning and Outlook

Moody’s specifically cited the independence of the Federal Reserve as a stabilizing factor but hinted that even this may not be guaranteed in the future. Trump has previously threatened to remove Fed Chair Jerome Powell, and there are concerns he could undermine the central bank’s independence if re-elected—a move that could shake market confidence.

Despite the downgrade, Moody’s affirmed the U.S. outlook remains “stable,” citing the strength of the economy, the U.S. dollar’s status as a global reserve currency, and the deep institutional trust embedded in the American system. However, the warning is clear: without concrete steps to reduce debt and deficits, the U.S. could face further downgrades—an outcome that could rattle markets and erode the standing of the world’s largest economy.