On Friday, Moody’s finally downgraded the U.S. credit rating, cutting it from AAA status—the last major agency to do so. It wasn’t entirely unexpected, but it still hit the markets hard. This move means all three big rating firms—Fitch, S&P, and now Moody’s—have lost faith in America’s long-term ability to manage its debt. That’s a red flag for investors across the globe. Still, Treasury Secretary Scott Bessent wasn’t worried. When asked about the downgrade, he casually said, “Who cares?” Markets, however, had their own take—and it wasn’t quite so relaxed.
According to Reuters, the downgrade came with warnings about rising debt and fiscal inaction.
While the news was expected, given the growing warnings in recent months, it comes at a particularly sensitive moment for both bond markets and the global economy. However, U.S. Treasury Secretary Scott Bessent’s response was nothing short of dismissive. When asked about the downgrade, he simply quipped, “Who cares?”
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💳 Buy the Smart Budgeting Starter Kit – $10That rhetorical question may have downplayed the issue politically, but the bond market “begs to differ.”
Why Did Moody’s Pull the Trigger?
The reasoning behind the downgrade is anything but trivial. Moody’s pointed to the rapidly rising U.S. debt, projecting that it will hit 134% of GDP by 2035 if current trends persist. To put that into perspective, this means the U.S. would owe significantly more than it produces annually.
Moody’s didn’t downgrade the U.S. credit rating for fun—it’s a serious signal. They looked at the skyrocketing national debt, which could hit 134% of GDP by 2035 if we stay on this path. That’s more debt than the country makes in an entire year.
As noted by U.S. Congressional Budget Office, debt is expected to outpace GDP significantly in coming years.
To make matters worse, some analysts are saying the annual deficit might shoot past 7% of GDP next year. For a developed nation, that’s alarming. It’s not just that we’re spending—it’s that we’re spending without a plan to stop.
Moody’s also pointed to the usual suspect: political gridlock. When lawmakers can’t agree on how to rein in spending, investor confidence slips. And when that happens, markets start to sweat.
Market Reaction: A Quick Pulse Check
CNBC reported a sharp dip in futures and rising long-term yields following the downgrade.
Despite Bessent’s dismissal, the financial markets were swift to respond.“Long-term U.S. Treasury rates climbed above 5% — a level unseen since October 2023 — rattling bond traders and economists alike.” This sharp rise in long-term yields signals a lack of confidence in the government’s ability to manage its debt.
Meanwhile, 10-year Treasury yields rose about five basis points from Friday’s close, compounding concerns about borrowing costs. The U.S. dollar slipped, adding to global investor anxiety, while Wall Street futures fell by over 1%, indicating nervousness heading into the next trading week.
A Growing Fiscal Problem in Washington
The downgrade also brings renewed attention to Washington’s lack of fiscal restraint. Just days before the downgrade, a congressional committee approved former President Donald Trump’s sweeping tax-cut bill. While marketed as a pro-growth policy, non-partisan analysts estimate the legislation would add between $3 to $5 trillion to the national debt over the next decade.
Currently, the national debt sits at a staggering $36.2 trillion. With deficits expected to widen and revenues not keeping pace, the U.S. finds itself in a precarious fiscal position. The downgrade highlights the need for a comprehensive fiscal reform strategy, yet no such plan appears imminent.
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Tariff Talk Rekindles Global Tensions
In a series of follow-up statements, Bessent not only dismissed the downgrade but reignited trade tensions. He warned international trade partners that “maximum tariffs” would be applied if deals weren’t made in good faith. These remarks triggered flashbacks to the previous trade war era, which rattled markets and disrupted supply chains.
“Trump stirred more controversy by urging big-box retailers like Walmart to absorb tariff costs themselves, rather than pushing them onto U.S. shoppers.” rather than passing the cost increases to American consumers. This rhetoric is unsettling to corporations already grappling with inflation, supply chain pressures, and geopolitical uncertainty.
Looking ahead, G7 finance leaders are expected to press the U.S. for more consensus on non-tariff trade issues during their upcoming meeting in Canada. Meanwhile, the EU executive recently cut euro zone growth forecasts, citing uncertainties from U.S. trade actions.
Foreign Confidence Is Slipping
Another troubling signal is the decline in foreign holdings of U.S. Treasuries. Recent data shows that China reduced its holdings by nearly $20 billion, and British-based holders have now overtaken China as the second-largest group behind Japan.
This shift in Treasury ownership reflects growing global caution. Should foreign investors continue reducing their positions, it could lead to even higher borrowing costs for the U.S. and increase pressure on the dollar.
Global Ripples: Beyond U.S. Borders
This downgrade doesn’t just affect the U.S.—it sends shockwaves across the globe.
In Europe, the EU and the UK made progress on a post-Brexit deal covering things like security and youth mobility. But any positive vibes were dampened by global market jitters.
Over in the Middle East, Syria is trying to come back into the global economy, while the U.S. considers easing oil sanctions on Iran—something that could shake up prices, especially for China.
China’s economy is also flashing mixed signals. Factory output looks okay, but retail and real estate? Not so much. Investors there ended the day in the red.
US Credit Downgrade 2025: A shrinking AAA club and market skepticm
Perhaps the most telling takeaway from Moody’s decision is the shrinking list of AAA-rated countries. Once a robust group, it’s now a select few. The downgrade raises doubts about the perceived invincibility of U.S. markets.
Despite high corporate earnings and recent stock market rallies, many analysts are urging caution. “Many investors feel that today’s stock prices, especially in tech and AI sectors, are drifting far from America’s budget reality.”. A correction may not be imminent, but the risk is increasing.
“The long-held belief in a resilient American stock market is starting to show cracks.” With rising debt, global tensions, and fragile investor confidence, the belief in perpetual U.S. dominance may no longer be guaranteed.
Final Thoughts
“At first glance, Moody’s rating shift might appear procedural, but for policymakers, it’s a loud and clear warning bell.” When the world’s biggest economy starts losing the trust of top rating agencies, it’s not something to brush off.
The reaction from government officials, especially Bessent’s “who cares?” comment, shows how far apart politics and markets can be. While they may spin it for headlines, investors are watching the numbers—and the numbers don’t lie.
If the U.S. keeps spending like this, ignoring long-term debt warnings, it’ll eventually catch up. Whether it’s through higher borrowing costs, inflation, or weakening global trust, the fallout will come. And it won’t just affect Wall Street—it’ll hit ordinary Americans, too.
At the end of the day, this downgrade isn’t just about credit scores. It’s a message. The question is: Is anyone in Washington listening?
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