Rating Downgrade and Economic Outlook
Moody’s Ratings downgraded the government's credit rating from Aaa to Aa1, citing the inability of successive governments to curb rising debt levels.
Despite the downgrade, Moody’s highlighted the U.S.'s exceptional credit strengths, including the dynamism of its economy and the U.S. dollar's status as the global reserve currency.
Political Stalemate and Fiscal Policy
The rating agency forecasted federal deficits to increase, reaching nearly 9% of GDP by 2035, driven by higher interest payments, rising entitlement spending, and low revenue generation.
A political deadlock, with Republicans opposing tax increases and Democrats hesitant to cut spending, has hindered efforts to address the fiscal challenges. Recent attempts to pass tax breaks and spending cuts failed due to internal Republican divisions.