The White House on Monday dismissed a credit-rating downgrade that cost the U.S. it’s last AAA rating.
However, the White House has largely shrugged off the news. On Sunday, U.S. Treasury Secretary Scott Bessent called the Moody’s downgrade a “lagging indicator” of dissatisfaction with the previous administration.
On Monday, White House Press Secretary Karoline Leavitt said President Donald Trump disagreed with Moody’s assessment.
“The world has confidence in the United States and our economy once again,” she said during a news briefing. “So there’s a lot of optimism in this economy and the president disagrees with that assessment.”
Moody’s knocked down the U.S. credit rating to AA1 on Friday, projecting Congress won’t be able to reduce the nation’s growing debt. It was the last credit-rating agency to keep the U.S. at a top AAA rating. That changed Friday, with Moody’s joining S&P Global and Fitch on the lower rating. Fitch Ratings downgraded the U.S. in 2023 and S&P Global Ratings did so 2011. Moody’s said it didn’t see any budget proposals that would address the country’s more than two decades of spending more money than it takes in.
“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,” Moody’s wrote in a statement. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat.”
Cato Institute Director of Budget and Entitlement Policy Romina Boccia said the downgrade was a stark warning.
“This isn’t just a warning about long-term debt anymore. It’s a rebuke of a political system that is no longer even pretending to budget responsibly. Adding 25% to the national debt on top of a structurally unsound fiscal path is like accelerating toward a cliff and calling it progress,” she wrote. “The downgrade is a signal to markets – and to the public – that faith in US political institutions to manage the nation’s finances is eroding. Moody’s is essentially saying: We no longer believe you’ll course-correct in time.”
White House National Economic Council Director Kevin Hassett told Fox on Monday that he had a different take.
“If you have the best economy on Earth, you’re going to have the best debt on Earth, too. That’s the way I would rate it,” he said on “Mornings with Maria.”
Moody’s assessment of the U.S. outlook wasn’t all bad.
“The U.S. economy is unique among the sovereigns we rate,” Moody’s noted in its outlook. “It combines very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth. While GDP growth is likely to slow in the short term as the economy adjusts to higher tariffs, we do not expect that the US’ long-term growth will be significantly affected.”
Moody’s also noted the nation’s status as the reserve currency of the world.
“U.S. dollar’s status as the world’s dominant reserve currency provides significant credit support to the sovereign. The credit benefits of the dollar are wide-ranging and provide the extraordinary funding capacity that helps the government finance large annual fiscal deficits and refinance its large debt burden at moderate and relatively predictable costs,” Moody’s wrote. “Despite reserve diversification by central banks globally over the past twenty years, we expect the US dollar to remain the dominant global reserve currency for the foreseeable future.”
Moody’s also noted that Congress still has time to change the nation’s fiscal path.
“Underpinning the rating is our assumption that the US’ institutions and governance will not materially weaken, even if they are tested at times. In particular, we assume that the long-standing checks and balances between the three branches of government and respect for the rule of law will remain broadly unchanged. In addition, we assess that the US has capacity to adjust its fiscal trajectory, even as policy decision-making evolves from one administration to the next,” the report said. “Moreover, the resilience of the US sovereign rating to shocks is supported by strong monetary and macroeconomic policy institutions. Although policy has been less predictable in recent months, relative to what has typically been the case in the US and other highly-rated sovereigns, we expect that monetary and macroeconomic policy effectiveness will remain very strong, preserving macroeconomic and financial stability through business cycles.”
