Moody’s Corp and the U.S. Credit Rating Downgrade

On May 19, 2025, financial markets experienced a cautious start as Moody’s Corporation, a leading credit rating and risk analysis firm, downgraded the U.S. government’s credit rating. This decision has had significant repercussions across global markets, affecting stock indices, bond yields, and the U.S. dollar index.

Impact on Financial Markets

The downgrade by Moody’s, which lowered the U.S. credit rating from Aaa to Aa1, has led to a notable decline in U.S. stock futures. Futures on the Nasdaq 100, Dow Jones Industrial Average, and S&P 500 were down by 1.74%, 0.87%, and 1.31%, respectively. This move by Moody’s has also contributed to a drop in the U.S. dollar index below 100.50, reflecting increased pressure on the currency.

Reasons Behind the Downgrade

Moody’s cited the growing U.S. budget deficit and the potential for the federal debt to rise to approximately 134% of GDP by 2035, up from 98% in 2023, as key reasons for the downgrade. The agency expressed concerns over the lack of a clear path to reducing the deficit, especially in a high-interest-rate environment.

Market Reactions

The downgrade has led to a sell-off in both U.S. stocks and bonds, with the yield curve steepening as the 10-year U.S. Treasury yield rose to 4.526%, and the 30-year yield approaching the psychologically significant 5% level. This has heightened market concerns about the U.S. economic outlook and fiscal deficit, leading to increased demand for safe-haven assets like gold, which saw a 1% rise.

Official Responses

The U.S. government’s response to the downgrade has been mixed. White House Communications Director Zhang Zhenxi criticized Moody’s decision, highlighting the agency’s past political affiliations and questioning the credibility of its analysis. Meanwhile, U.S. Treasury Secretary Scott Bessent expressed skepticism towards Moody’s, suggesting that the agency’s ratings lag behind economic indicators. Bessent also emphasized that the U.S. GDP growth rate is expected to outpace debt growth.

Looking Ahead

The downgrade by Moody’s, following similar actions by other major rating agencies, marks a significant moment for U.S. fiscal policy and its implications for global financial markets. As investors and policymakers digest the implications of this downgrade, attention will likely focus on the U.S. government’s ability to address its fiscal challenges and the potential impact on asset prices and economic growth.

Moody’s Corporation, headquartered in New York and listed on the New York Stock Exchange, continues to play a pivotal role in the global financial system through its credit ratings and risk analysis services. As markets adjust to the new credit rating landscape, Moody’s findings will remain a critical factor in investment decisions and economic forecasts.