Blow to Donald Trump's narrative? Moody's strips US government of gold-standard Aaa credit rating, cuts it to Aa1

Moody's Ratings downgraded the United States government's credit rating on Friday, pointing to the inability of consecutive administrations to control increasing government debt levels.The credit rating reduction to Aa1 from Aaa compounds the challenges for the US President Donald Trump, coinciding with the day his main spending legislation failed to secure crucial congressional approval due to resistance from fiscally conservative Republican members.This development undermines Donald Trump's claims regarding economic robustness and financial success, according to an AFP report.The White House responded on X, where communications director Steven Cheung specifically criticised Moody's Analytics' chief economist, Mark Zandi."Nobody takes his 'analysis' seriously. He has been proven wrong time and time again," Cheung posted.Also Read | Why India can be a big winner of Donald Trump 2.0 era if it plays its cards rightAmong the three major global rating agencies, Moody's is the final one to reduce the US federal government's credit status. Standard & Poor's implemented their downgrade in 2011, followed by Fitch Ratings earlier in 2023.Moody’s reduced the rating from the premium Aaa to Aa1, whilst acknowledging that the US maintains outstanding credit advantages, including "the size, resilience and dynamism of its economy and the role of the U.S. dollar as global reserve currency."Moody's issued a statement indicating that federal deficits are projected to expand to approximately 9% of the US economy by 2035, increasing from 6.4% in 2024. This growth is primarily attributed to higher debt interest payments, increased entitlement expenditure, and insufficient revenue collection.The ratings agency noted that extending the tax reductions implemented during Donald Trump's presidency in 2017, which the Republican-controlled Congress supports, would contribute an additional $4 trillion to the federal primary deficit over the next ten years, excluding interest payments.Also Read | ‘Don’t want you building in India’: Donald Trump’s clear message to Apple CEO Tim Cook to 'Make in US'; says India can take care of themselvesThe American political landscape remains divided, preventing effective management of substantial deficits. The Republican party stands against tax increases, whilst Democrats resist spending reductions.The House Republicans encountered a setback on Friday when they failed to advance a substantial package combining tax benefits and spending reductions through the Budget Committee. The proposal was defeated when several conservative Republican legislators, demanding deeper cuts to Medicaid and Biden's environmental energy tax incentives, voted alongside all Democratic members in opposition.