Timing-wise, we've seen better. While US assets have been facing distrust from international investors for several months, and Congress is currently debating a new budget bill, the rating agency Moody's chose this moment to announce the downgrade of the United States' rating from "Aaa" to "Aa1."
In substance, Moody's decision comes as no real surprise. On the one hand, the outlook had already been negative for a year. On the other hand, Moody's was the last of the three major rating agencies to maintain its maximum rating on US debt: Standard & Poor's had withdrawn it in 2011, followed by Fitch in 2023. Moreover, the arguments put forward by Moody's to justify this downgrade are already relatively well-established in investors' minds: soaring debt, widening budget deficits, and rising cost of debt. Above all, US credit indicators now diverge significantly from those of countries still rated Aaa by the agency. For example, interest payments—including federal, state, and local debt—represented 12% of US public revenue in 2024, compared to only 1.6% for the average of other countries with the highest rating.
This warning should provide food for thought for the ultraconservative wing of Republicans, who temporarily opposed the "great and beautiful" budget bill championed by Donald Trump. In particular, in addition to several tax breaks, the President wants to extend the tax credits from his first term, which expire at the end of the year. The problem is that, according to an independent congressional commission, these measures would increase the deficit by nearly $5 trillion over ten years. To offset some of this, the executive branch plans to cut public spending, with the Medicaid program in particular. However, this possibility is divisive even within the Republican camp: the most moderate elected officials are concerned about the social and electoral impact of such cuts, particularly with the midterm elections approaching. Although Republicans hold the majority in both chambers, these internal divisions could seriously complicate upcoming negotiations.
Regarding all things considered, the case of the United States is reminiscent of that of France at the end of last year: little, if any, impact on the markets in the short term, but an additional warning of the structural deterioration of public finances, which will eventually have to be addressed. This observation is all the more worrying given that the current economic situation is not conducive to a rapid recovery: growth is slowing, which will weigh on tax revenues, and uncertainties over customs duties are adding to the pressures on the economy. Ultimately, this decision by Moody's is perhaps less of a surprise than a symbol, that of the beginning of a slow downgrade of the United
