US downgraded by Moody’s as Trump pushes costly tax cuts

The Capitol in Washington, May 15, 2025. A downgrade of the U.S. credit rating by the ratings firm Moody’s means that each of the three major credit rating firms no longer gives the United States its best rating. (Al Drago/The New York Times)

By Tony Romm, Andrew Duehren and Joe Rennison

The credit rating of the United States received a potentially costly downgrade last Friday, as the ratings firm Moody’s determined that the government’s rising debt levels stood to grow further if Republicans enact a package of new tax cuts.

The downgrade, to one notch below the highest triple-A rating, amounted to a repudiation of Washington, where President Donald Trump only hours earlier had pushed his party to adopt a legislative package that might add trillions of dollars to the nation’s fiscal imbalance.

The downgrade from Moody’s means that each of the three major credit rating agencies no longer gives the United States its best rating. Fitch downgraded the United States in 2023, citing fiscal concerns, and Standard & Poor’s downgraded the country in 2011.

The new rating decrease could send ripple effects through the economy if it prompts investors to demand higher payments on bonds, which in turn could raise consumers’ borrowing costs. So far, though, past downgrades have proved largely symbolic, as the U.S. government’s debt remains the bedrock of the global financial system.

Moody’s pointed to decades of gridlock and dysfunction in the nation’s capital. It found that Democrats and Republicans alike had failed to meaningfully curtail U.S. debt, which now towers above $36 trillion.

Nor had the U.S. government addressed myriad well-known, and long-term, financial challenges, Moody’s said, especially the rising costs and persistent underfunding of programs like Social Security and Medicare.

While Moody’s described the U.S. financial system as stable, and found the dollar to be strong and reliable, it also acknowledged the vast policy uncertainty — and it obliquely referred to the ways in which political stability and constitutional order can be “tested at times.”

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” the report from Moody’s said. “We do not believe that material multiyear reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

Moody’s specifically referred to the push to renew the expensive tax cuts adopted under Trump in 2017, a task that Republicans are now struggling with on Capitol Hill.

The party is trying to offset some of the roughly $3.8 trillion cost of lowering taxes with cuts to spending on health care, clean energy incentives and food stamps. But the scope and the approach of the package have divided Republican lawmakers, with hard-right conservatives demanding steeper cuts as some moderates caution against taking benefits away from too many Americans.

On Friday, some conservatives seized on the Moody’s downgrade to call for deeper spending cuts as part of their party’s imperiled domestic policy bill.

“Moody’s downgrade of America’s debt is a signal that we can wait no longer to address the debt crisis,” Rep. Andy Harris, R-Md., said in a post on social media. He added that he was “not supporting” the tax package without substantial changes.

Even with its existing spending cuts, the Republican package is expected to add significantly to the debt. The Committee for a Responsible Federal Budget estimated that the current version of the bill overall would cost $2.7 trillion over a decade, before counting additional borrowing costs.

That number could easily grow if Congress later extends measures including no tax on tips, which under this piece of legislation would last only four years.

Kush Desai, a White House spokesperson, sought to blame the Moody’s downgrade on the administration of former President Joe Biden.

“The Trump administration and Republicans are focused on fixing Biden’s mess by slashing the waste, fraud and abuse in government and passing the One, Big, Beautiful Bill to get our house back in order,” he said in a statement.

The prospect of much more government borrowing — when interest rates are already elevated — has made some bond investors nervous. So-called vigilantes in the bond market have been selling the government’s debt as the Republican tax package has wound its way through Congress, contributing to higher yields, which in turn translate to higher interest rates on consumer borrowing.

The 10-year Treasury bond yield has risen roughly 0.3 percentage point this month to about 4.5%. The 30-year Treasury yield briefly crossed 5% this week; the last time it did that, during some of the worst tariff fears, Trump cited the bond market among reasons he pared back his tariff proposals.

It’s a sign that the government could end up paying a higher interest rate on its debt if it can’t soothe investors’ concerns over its mounting debt, a development that could snowball into a full-blown debt crisis for the world’s largest economy.

Moody’s announced the downgrade just before bond markets closed Friday, so investors will have to wait until Sunday to respond.

“We have warned that the bond vigilantes were teeing up for an event to move against Treasurys,” said Andrew Brenner, head of international fixed income at NatAlliance Securities. “This would qualify as a catalyst to move rates markets Sunday night.”

Still, the downgrade is unlikely to deter Republicans in their quest to slash taxes, even though party lawmakers previously griped about similar backslides in ratings. After previous downgrades, lawmakers in both parties did not raise taxes or cut spending enough to improve the country’s fiscal outlook, instead repeatedly passing legislation that, overall, reduced taxes and increased spending.

“Years of dysfunction, debt ceiling debacles and fiscal imprudence have brought us to this outcome,” said Joe Brusuelas, chief economist at accounting firm RSM. He warned that “anything financed in both the public and private sector will now be more expensive.”