US Credit Rating Downgraded as National Debt Soars to Historic Highs
(STL.News) US Credit Rating – The United States has been dealt a sobering fiscal verdict as Moody’s Investors Service officially downgraded the nation’s long-term credit rating, citing deteriorating debt sustainability and chronic budget deficits. The move reflects growing concern among global investors and rating agencies that the U.S. government fails to implement effective solutions to rein in its national debt.
This development marks Moody’s first downgrade of the U.S. credit rating since it began issuing sovereign ratings in 1917 and aligns the firm with similar actions by Fitch Ratings in 2023 and Standard & Poor’s in 2011.
US Credit Rating – Why the Downgrade Happened
Moody’s cited several core reasons for the downgrade, primarily the U.S. government’s worsening debt outlook and the apparent lack of bipartisan momentum to enact credible fiscal reform. According to Moody’s, the United States faces “persistent fiscal deficits and rising interest costs that are eroding debt affordability.”
The downgrade sends a warning signal to investors and policymakers, as the U.S. debt surpassed $36 trillion in early 2025. Based on projections from the Congressional Budget Office, if current policies remain unchanged, the national debt could reach 134% of gross domestic product (GDP) by 2035—a level that would significantly weaken the government’s flexibility in responding to future crises or economic downturns.
US Credit Rating – How Much Debt Has Been Added?
A critical piece of the debt story lies in the rapid increase in federal borrowing over the last few years. Under the Biden administration, which began in January 2021 and concludes in January 2025, the national debt rose by approximately $8.4 trillion. When President Joe Biden took office, the U.S. debt stood at around $27.8 trillion. By early 2025, it had grown to over $36.2 trillion.
Several legislative and executive measures contributed to this increase:
- The American Rescue Plan, passed in March 2021, added nearly $1.9 trillion in spending aimed at mitigating the economic impact of the COVID-19 pandemic.
- The Infrastructure Investment and Jobs Act, signed in November 2021, committed $1.2 trillion toward transportation, broadband, and utilities.
- Additional federal expenditures on healthcare expansion, climate policy, student loan programs, and energy transition further contributed to the overall debt burden.
While supporters of these policies argue they were essential for economic recovery and long-term development, critics have warned that such spending levels, especially when deficit-financed, could create unsustainable fiscal conditions. The latest downgrade by Moody’s suggests that those concerns are now becoming material risks in the eyes of international financial watchdogs.
US Credit Rating – Rising Interest Costs
Another alarming trend is the cost of servicing the debt. As interest rates have climbed in response to inflationary pressures, so have the federal government’s interest obligations. Annual interest payments are projected to exceed $1 trillion by 2026, rivaling the entire defense budget. These growing obligations limit flexibility for other essential government services and threaten to crowd out private investment.
The rise in rates has also impacted the broader economy. The yield on the U.S. 30-year Treasury bond surged to 5.02%—its highest level since 2023—immediately following Moody’s announcement. This reflects market concerns about U.S. creditworthiness and drives up economic borrowing costs, including mortgages, student loans, and business lending.
Market Reactions and Global Fallout
The downgrade reverberated through global markets. European and Asian stock indices fell as investor sentiment turned cautious. In the U.S., equity futures dipped while bond yields rose and the U.S. dollar weakened slightly against major foreign currencies.
Foreign investors and sovereign wealth funds—many of whom hold large portfolios of U.S. Treasuries—are now reviewing their exposure to American assets. Though U.S. government bonds remain among the most liquid and reliable investments globally, a lower credit rating may gradually erode their standing.
Political and Economic Response
The Treasury Department responded swiftly. Treasury Secretary Scott Bessent downplayed the downgrade’s long-term significance, asserting that the U.S. remains fundamentally strong and emphasizing ongoing efforts to stimulate growth and cut wasteful spending. However, he acknowledged the importance of reducing deficits over the coming decade.
Lawmakers across party lines have offered divergent responses. Some Republicans pointed to the spending surge under the Biden administration as the primary reason for the downgrade, calling for spending caps and entitlement reform. Several Democrats countered that increased expenditures were necessary to avert a recession and modernize outdated infrastructure, and that revenue enhancements, particularly on high-income earners, should be part of the solution.
The White House criticized Moody’s for acting “prematurely” and claimed that the administration’s long-term economic strategy would yield budgetary improvements over time.
Long-Term Implications
Credit downgrades are not just symbolic. They can impact public finance, investor behavior, and economic growth. The downgrade may lead to:
- Higher borrowing costs for the federal government can trickle down to households and businesses.
- Reduced investor confidence, particularly among international holders of U.S. debt.
- Pressure on the Federal Reserve may compel it to adjust its policy path to maintain market stability.
- There is a political urgency to craft bipartisan solutions for long-term fiscal sustainability.
Despite these concerns, Moody’s reaffirmed the U.S.’s capacity to meet its debt obligations soon and maintained a stable outlook. The agency emphasized that the U.S. could regain its top-tier rating if meaningful fiscal reform is enacted and debt ratios stabilize.
Conclusion
The U.S. credit rating downgrade is a wake-up call for American policymakers and a red flag for global markets. With the national debt now over $36 trillion—up by over $8 trillion during the Biden presidency—there is a renewed need for strategic fiscal planning and disciplined governance.
The United States remains a dominant economic power with vast resources, innovation, and influence. But as this latest downgrade shows, even a nation with unrivaled financial infrastructure is not immune to the consequences of unchecked debt accumulation. A sustainable fiscal path will require difficult but necessary decisions that future administrations, lawmakers, and the public must be prepared to face.
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