Moody's is the last of the three major rating agencies to lower the federal government's credit. Standard & Poor's downgraded federal debt in 2011 and Fitch Ratings followed in 2023.
In a statement, Moody's said: "We expect federal deficits to widen, reaching nearly 9% of (the U.S. economy) by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.''
Extending President Donald Trump's 2017 tax cuts, a priority of the Republican-controlled Congress, Moody's said, would add $4 trillion over the next decade to the federal primary deficit (which does not include interest payments).
A gridlocked political system has been unable to tackle America's huge deficits. Republicans reject tax increases, and Democrats are reluctant to cut spending.
On Friday, House Republicans failed to push a big package of tax breaks and spending cuts through the Budget Committee. A small group of hard-right Republican lawmakers, insisting on steeper cuts to Medicaid and President Joe Biden’s green energy tax breaks, joined all Democrats in opposing it.