Moody’s Downgrades U.S. Credit Rating: A Major Blow to Trump’s Economic Policy

For the first time in its history, the credit rating agency Moody’s has stripped U.S. government debt of its highest rating, downgrading it from Aaa to Aa1, with a stable outlook. This unprecedented move is driven by the rising U.S. debt and its growing burden on the federal budget.

The downgrade delivers a serious setback to Donald Trump’s economic agenda, just as the president is struggling to rally congressional support for a sweeping budget plan. Moody’s emphasized the lack of political consensus to rein in deficits and avoid what it sees as an unsustainable fiscal trajectory.

In a statement, the agency warned: “Successive governments have failed to implement the necessary measures to reverse the trend of large annual deficits. We expect deficits to increase significantly over the next decade, further straining public finances.” It called for “substantial fiscal reforms”, either by increasing revenues or cutting expenditures.

Budget Reform Stalls in Congress

The downgrade comes as Trump’s flagship budget proposal faces obstacles in Congress. The plan includes the extension of tax breaks from his first term and $880 billion in spending cuts over ten years, mostly targeting healthcare programs for low-income Americans.

Despite Trump’s public pressure on his platform Truth Social, five Republican lawmakers sided with Democrats to block the bill in the House Budget Committee, raising doubts about its prospects for passage.

Moody’s decision has fueled the debate. Democratic Representative Brendan Boyle, a member of the Budget Committee, described it as “a direct warning,” blaming House Republicans for worsening the nation’s fiscal outlook. Meanwhile, Republican French Hill saw it as “a powerful reminder that things are not in order,” urging a return to budget discipline.

A Gradual Erosion of Confidence

With this move, Moody’s becomes the third major credit agency to downgrade U.S. sovereign debt. Standard & Poor’s was the first in 2011, followed by Fitch in 2023, which cited repeated political crises over the debt ceiling as a threat to U.S. governance. Moody’s had until now maintained its top-tier rating.

Still, the agency tempered its concerns, noting that the U.S. economy retains significant structural strengths, including strong income levels, innovation capacity, deep financial markets, and robust growth potential. These factors justify the stable outlook—for now.