U.S. Credit Rating Downgrade Marks a Historic Shift

Traditions Wealth Advisors
Jade Chapman/Brien L. Smith CFP©
Economic Analyst Intern/Chief Investment Officer
May 28, 2025

Howdy! My name is Jade Chapman, and I’m honored to serve as the Economic Analyst Intern at TWA for the 2025–2026 academic year, continuing the great work of Greysen Golgert. I’m a senior at Texas A&M, beginning an accelerated master’s program this fall. I join TWA at a dynamic time for the U.S. economy, and over the next year, I’ll provide analysis and commentary on key macroeconomic trends. As I begin this exciting chapter, I find myself analyzing a particularly consequential development in the macroeconomic landscape: the recent downgrade of the United States’ credit rating.
​
The United States’ credit rating has long served as a benchmark for fiscal strength and reliability. Ratings from the three major credit agencies—Standard & Poor’s (S&P), Fitch Ratings, and Moody’s Investors Service—assess the creditworthiness of sovereign nations, with AAA indicating the strongest capacity to meet financial obligations. Holding this top-tier rating has traditionally allowed countries to borrow at lower interest rates and demonstrated overall economic stability.

Historically, the U.S. maintained at least one AAA rating. That changed gradually: S&P downgraded the U.S. to AA+ in 2011, citing political disputes over the debt ceiling, and Fitch followed suit in 2023. In May 2025, Moody’s—the last of the major agencies to rate the U.S. at AAA—lowered its rating to Aa1, pointing to worsening fiscal trends and persistent political dysfunction. This marks the first time the U.S. lacks a AAA rating from any of the three major credit agencies.

Moody’s decision was rooted in several key concerns. Foremost is the growing national debt, which recently surpassed $36 trillion and is projected to push the debt-to-GDP ratio beyond 130% by 2035. Chronic budget deficits and rising interest payments, which may consume nearly a third of federal revenue within a decade, also factored heavily. These trends reduce fiscal flexibility and hinder the government's capacity to respond to future challenges. Additionally, Moody’s cited the intensifying political gridlock in Washington, where protracted disputes over budgeting and debt limits have cast doubt on lawmakers' ability to implement sustainable fiscal policy.

While largely symbolic, the recent U.S. credit rating downgrade reflects long-standing structural considerations rather than signaling immediate financial risk. U.S. Treasury securities continue to play a central role in global finance and are widely regarded as stable and liquid assets. The announcement was followed by a brief rise in 30-year Treasury yields to levels not seen since 2023. Although the Aa1 rating remains within investment-grade, some institutional investors with specific rating criteria may review their holdings. Broader market impacts, such as shifts in long-term interest rates or short-term volatility, may reflect evolving market perceptions rather than abrupt changes in economic fundamentals.

Despite the ratings shift, the U.S. financial system remains among the world’s most robust. Deep capital markets, a solid institutional framework, and the dollar’s international dominance continue to underpin investor confidence. Rather than a crisis, the downgrade should be viewed as a call for reform—an opportunity for policymakers to craft bipartisan solutions that address long-term fiscal imbalances and restore top-tier credit standing.

Sources:
 https://www.wsj.com/finance/global-markets-decline-after-u-s-credit-rating-downgrade-30af711c?mod=Searchresults_pos5&page=1
https://www.wsj.com/economy/central-banking/u-s-loses-last-triple-a-credit-rating-bfcbae5d?mod=Searchresults_pos2&page=1
https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/notes-on-the-week-ahead/policy-and-the-investment-landscape-an-update/
https://www.yardeniquicktakes.com/economic-week-ahead-may-19-23/