Moody's downgrades the US rating

The White House reacted harshly to the rejection. Spokesman Steve Cheung attacked Moody's Analytics economist Mark Zandi saying that 'nobody takes his "analysis" seriously. He has been debunked several times'. The criticism actually appears misdirected, since it is Moody's Ratings and not Moody's Analytics that handles credit ratings.

Since taking office on 20 January, Trump has stated that he wants to balance the budget, while his Treasury Secretary Scott Bessent has reiterated the goal of reducing the government's borrowing costs. However, efforts to increase revenue and reduce spending have not yet convinced investors. Attempts by the so-called Department of Government Efficiency led by Elon Musk have essentially failed.

Moody's decision risks complicating the agenda of the White House, which has already suffered a setback in the Congressional Committee with the revolt of fiscal hawks among the same Republicans who criticise as inadequate the proposed savings to cover the tax cuts. The downgrade could give breath to their rebellion. From the Democratic opposition, however, the plan is attacked as an excessive gift to the wealthy and big business while drastically reducing public services and welfare.

The spectre of fiscal imbalances, however, is growing. America's annual federal deficits are running at around 2 trillion a year, or 6 per cent of GDP, inflated by rising interest on the debt. The federal debt burden has now exceeded 36 trillion in total. It could rise further with the agenda of Donald Trump and the Republicans, centred on major new tax cut legislation amounting to some 4 trillion and spending reductions of 1.5 trillion. The legislation under discussion in Congress fully extends and strengthens the relief passed under the first Trump administration and expiring this year.

"It is further confirmation that the US has too much debt," explains Darrell Duffie, a former Moody's board member who now teaches at Stanford. "Congress will have to get its act together: either raise revenue or spend less." According to Moody's, the tax measures under discussion are unlikely to sustainably reduce deficits. The rating agency estimates that the debt-to-GDP ratio will rise to 134% by 2035, up from 98% in 2024. "Moody's downgrade of the US credit rating should be a wake-up call to Trump and congressional Republicans to end their reckless policy of deficit-exploding tax cuts," said Senate Majority Leader Chuck Schumer. "Unfortunately, I have no illusions."

Moody's downgrade follows that of the agency Fitch in August 2023, also by one notch. S&P had already downgraded the US to the highest rating after the debt ceiling crisis in 2011.