The last one went: the USA finally lost its maximum rating

The Moody's rating agency lowered the credit rating of the United States for the first time in its history — specifically, since 1919. The agency referred to the extremely high level of public debt, which the administration of Donald Trump and Congress cannot yet cope with. The markets immediately reacted to the agency's decision to drop US bond prices, and American officials expressed dissatisfaction. What is behind the disappointment of rating analysts with American finances and what will be the consequences of this step — in the material of Izvestia.

Parting with the standard

The credit rating of the United States has been consistently considered a benchmark for many decades and has been held at the highest levels by the entire "big three" rating agencies. It was hard to even imagine that he could be demoted. But after the financial crisis of 2008, which led to massive borrowing by the American government, a gradual reassessment of values began. In 2011, Standard & Poor's was not the first to hold back, lowering the maximum rating of the United States by one notch. The American government reacted to this step by no means favorably: S&P was accused of all mortal sins by both Democrats and Republicans — and even subpoenaed. The agency eventually had to pay $1.5 billion, but it did not abandon its assessment.

In 2023, so did Fitch, which saw the risks in the Joe Biden administration's anti-crisis program, which was adopted as a result of the pandemic and cost additional trillions of dollars in deficits. Here, the reaction was already calmer — the decision was expected by many. Moody's was the last one left, but there was no point in keeping the maximum rating at a time when the debt to GDP ratio of the United States reached 130%.

An additional factor that accelerated this decision may have been the bickering in Congress over the extension of tax breaks introduced by Trump during his first term. If this reduction continues, the United States will have to find a few more trillions somewhere. At the same time, efforts to reduce the deficit by increasing the efficiency of government spending have so far been crowned with rather modest successes that cannot dramatically affect the overall debt situation.

Another interesting coincidence: Moody's made its decision public a few days after billionaire investor Warren Buffett announced his retirement. The investment company Berkshire Hathaway, which is managed by Buffett, owns one of the largest blocks of shares in the agency.

As expected, Moody's decision did not meet with enthusiasm in the US government. White House Communications Director Stephen Chung said the decision was political and linked it to the agency's chief economist Nick Zandi, whom he called Trump's opponent. Treasury Secretary Scott Bessent, however, was much more restrained, saying that Moody's ratings were a lagging indicator that reflected a problem that everyone had known about before. He blamed the Joe Biden administration for the downgrade.

As for the markets, for them the Moody's rating has become a reason to overestimate the US government debt. The yield on US bonds increased by 10-15 basis points (0.1-0.15%), and for 30-year securities — up to 5%. The last time such a high level was observed was in 2023, against the background of a shock increase in the base rate by the Federal Reserve.

A set of problems

Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam, notes that it is difficult to name the exact reason for Moody's actions — rather, it is a complex of problems.

— Now the US national debt has exceeded $36 trillion and, probably, new sharp discussions in Congress will be held in the summer for another increase in its ceiling in order to prevent the threat of default. At the same time, Congress is considering Trump's fiscal proposals to extend temporary tax breaks established by the 2017 law. According to experts, this could increase the US national debt by $3-5 trillion in the next 10 years. Another trigger could be the spread of voluntarism and unpredictability in US economic policy with the return of Donald Trump, as well as his attempts to pressure the Fed to achieve a rapid reduction in interest rates, the expert points out.

Moody's in its review notes that the federal budget deficit will increase, reaching almost 9% of GDP by 2035, compared with 6.4% in 2024, which will be driven mainly by rising interest payments on debt, rising social security costs and the relatively weak ability of the economy to generate budget revenue. The level of public government debt (excluding debt owed by US authorities to each other) will rise to about 134% of GDP by 2035, compared with 98% in 2024. Such a deterioration in fiscal metrics can no longer be fully compensated even by the unique economic and financial advantages of the United States, Belenkaya noted.

Kirill Lysenko, an analyst on sovereign and regional ratings at Expert RA, added that the US budget is also under pressure from the persistence of increased interest rates.

"Because of them, the planned cost of debt servicing in 2025 exceeded $1 trillion dollars, despite the fact that back in 2022 this value was 2 times less," the source reminds Izvestia.

Not a good moment for America

Although the market reacted relatively calmly to the downgrade, it comes at a bad time in terms of investor confidence in U.S. economic policy and institutional strength, Belenkaya said.

— This is primarily due to Trump's drastic actions in tariff policy, as well as expectations of an increase in the US budget deficit if the tax changes he requires are implemented. The sharp increase in US import duties in early April, the introduction of "mirror" tariffs for more than 180 countries came as a shock to the markets, which reflected an increase in the volatility of US government bond yields, a decrease in the attractiveness of the dollar as a "safe haven currency" (at the same time, demand for gold, the Japanese yen and the euro increased), the expert notes.

Olga Belenkaya points out that although the recent agreements between the United States and China on the temporary reduction of mutual tariffs from 145 to 30% (from the United States) and 125 to 10% (from China) have moved the global economy away from the threat of crisis, uncertainty remains very high. Weakening confidence in economic policy, combined with worsening expectations regarding the long-term stability of the US budget and public debt (which is confirmed by rating actions), in her opinion, can accelerate the process of de-dollarization in the world.

As Kirill Lysenko points out, another danger of a rating downgrade is that it ties a positive feedback loop.

— A lower-grade sovereign rating will act as one of the factors that investors demand for increased yields on U.S. Treasury bills and bonds. This, in turn, is fraught with an increase in the severity of budget deficit problems and the high debt burden of the United States," the expert comments.