Moody’s Ratings agency downgraded the United States’ long-term sovereign credit rating from Aaa to Aa1 and changed the outlook to “stable” from “negative”. It is the first time since 1917 that Moody’s has stripped the US of its top-tier rating, writes eToro analyst for Romania, Bogdan Maioreanu.
The rating agency cites ballooning debt, an annual budgetary deficit that could widen, and political gridlock over taxes and spending. The measure came after the market closed on May 16, 2025, and might bring some market movement on Monday. But for many in the stock market, this was already priced in.
The US had maintained its pristine Aaa rating from Moody’s for over a century, reflecting its status as the world’s most stable and creditworthy economy. However, Moody’s, the last of the ‘Big Tree’ major ratings agencies that gave the U.S. a triple-A credit rating, scrutinized the federal government, saying successive presidential administrations and Congress have failed to find measures to reverse annual fiscal deficits and rising interest costs.
Moody’s warned that the US budget deficit, now nearing $2 trillion annually—or over 6% of GDP—could widen further to nearly 9% by 2035. It is the first time all three major international credit agencies — Moody’s Ratings, S&P Global Ratings and Fitch Ratings — have rated the United States below the top tier.
In 2011, the S&P downgrade was triggered by political gridlock over the debt ceiling and fiscal policy, which raised concerns about the government’s ability to manage its finances responsibly. Fitch’s downgrade in 2023 reflected ongoing fiscal pressures and rising debt levels. Moody’s downgrade in 2025 is the culmination of a decade-long trend of growing deficits, political polarization, and failure to implement effective fiscal reforms.
Moody’s is flagging deficits tied to tax cut extensions that haven’t passed the US legislature yet, while ignoring tariffs, which function as a $2T consumption tax that supports revenue. Tariffs hurt growth, but they help the Treasury: a trade-off the market seems to understand better than the rating agencies.
What is happening in the US markets is affecting 35% of Romanian retail investors who are exposed to that region, according to the latest eToro Retail Investor Beat survey. But 50% are exposed to the Romanian stock exchange. Romanian politicians should look carefully at the reasons for downgrading the US long-term debt and understand that a very high budget deficit is something that rating agencies will sooner or later sanction. While the reaction is still muted in the US markets, the Romanian economy is not as stable as recent exchange rate and market movements have shown. Romania’s credit rating is BBB- and Baa3 with a negative outlook, this being the last step above the “junk” level at which investments are no longer recommended. After the presidential elections, the new government will have a serious and difficult task ahead to maintain Romania’s investment rating, without which the country would lose access to reasonable interest rates.
Moody’s downgrade of US long-term debt might worry investors, but it reflects what markets already know: the United States is in a new fiscal regime defined by austerity via tariffs and caps, not stimulus. The 27-year era of fiscal stimulus ended in 2023 and net interest payments have quietly climbed to 18% of tax revenues, far above historic norms. However, balancing the budget deficit might be a more difficult task for the US government than the Trump campaign declarations might have suggested. Investors should keep an eye on Treasury yields and fiscal negotiations, keep calm and execute their investment plans.
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