No major agency still gives the United States its top credit grade. S&P Global Ratings and Fitch Ratings both score the US government at AA+, and Moody’s Investors Service scores it at Aa1. All three carry a stable outlook, and all three sit exactly one notch below the highest possible rating. Federal debt has passed $38 trillion, interest payments topped $1.2 trillion in fiscal year 2025, and the debt-to-GDP ratio is around 122%. Those numbers are the reason the US government credit rating no longer holds a AAA anywhere.
What AA+ and Aa1 Actually Mean
Credit rating agencies grade borrowers on letter scales split into investment grade and speculative grade. Investment grade runs from AAA (Aaa at Moody’s) down through BBB- (Baa3). Anything below is speculative. The dividing line matters because many pension funds, insurance companies, and institutional investors are restricted to investment-grade debt.1S&P Global. Understanding Credit Ratings
Within each tier, agencies add finer gradations. S&P and Fitch use plus and minus signs (AA+, AA, AA-). Moody’s uses numbers (Aa1, Aa2, Aa3). AAA sits at the ceiling and, in Fitch’s words, reflects “the lowest expectation of default risk” assigned “only in cases of exceptionally strong capacity for payment.” The AA tier still carries “expectations of very low default risk” and “very strong capacity for payment of financial commitments.”2Fitch Group. Ratings Definitions
So AA+ is not a warning. Nobody seriously expects the US to miss a debt payment. What the rating signals is that the country’s long-term fiscal profile carries slightly more vulnerability than the handful of governments that still hold AAA.
Each agency also publishes an outlook, which points to the likely direction of the rating over the next one to two years. A stable outlook, which the US carries at all three firms, means no further move is expected in the near term. A watch placement, more urgent, signals possible action within roughly 90 days.
How the US Lost Its AAA
The US held the top rating from every major agency for most of the modern era. That changed in 2011, and it has only moved in one direction since.
S&P: August 2011
S&P was first. On August 5, 2011, days after a debt-ceiling standoff that brought the government within hours of missing payments, S&P cut the US from AAA to AA+. The agency said “the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed.” S&P also concluded that the Budget Control Act of 2011 would not stabilize the debt burden.
Markets reacted sharply for a moment. The S&P 500 fell 6.6% the day of the downgrade. Treasury yields, oddly, declined in the following months as investors fled to government bonds during the broader turmoil.
Fitch: August 2023
Twelve years later, on August 1, 2023, Fitch cut the US from AAA to AA+. It cited “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”3Fitch Ratings. Fitch Downgrades the United States Long-Term Ratings to AA+ from AAA, Outlook Stable Fitch also noted that the US lacks the kind of medium-term fiscal framework most highly rated peers use, and has made limited progress on rising Social Security and Medicare costs. Market reaction was muted, with no sustained move in Treasury yields or mortgage rates.
Moody’s: May 2025
Moody’s held out the longest. Its May 16, 2025 downgrade to Aa1 meant no major agency still rated US debt at the top. Moody’s leaned on the numbers: federal debt projected to reach 134% of GDP by 2035, up from about 98% in 2024, with annual deficits running near 7% of GDP and potentially reaching 9% by 2034. Higher interest rates had also made carrying that debt significantly more expensive.4U.S. Government Accountability Office. Financial Audit: Bureau of the Fiscal Service FY 2025 and FY 2024 The 10-year Treasury yield ticked up to 4.48% in after-hours trading. Stocks barely reacted.
Why the Rating Sits Where It Sits
The US retains enormous credit strengths. It has the world’s largest economy, the deepest capital markets, and per-capita GDP well above the thresholds agencies use for their highest economic scores. The dollar’s role as the global reserve currency gives the Treasury borrowing flexibility no other government has.
The fiscal side is where the picture darkens. The debt-to-GDP ratio reached roughly 122% by the end of 2025, having climbed steadily for two decades.5Federal Reserve Bank of St. Louis. Federal Debt: Total Public Debt as Percent of Gross Domestic Product Interest payments hit $1.2 trillion in fiscal year 2025, taking a growing share of federal revenue.4U.S. Government Accountability Office. Financial Audit: Bureau of the Fiscal Service FY 2025 and FY 2024 Every dollar spent on interest is one that cannot fund programs or reduce the deficit.
Governance is the factor all three agencies pointed to explicitly. The debt ceiling, a statutory cap on total federal borrowing, has repeatedly become a political bargaining chip.6Office of the Law Revision Counsel. 31 USC 3101 – Public Debt Limit Brinkmanship in 2011, 2013, and 2023 created real uncertainty about whether the government would meet its obligations on time. When rating methodologies weigh the effectiveness and predictability of policymaking, last-minute debt-ceiling resolutions weigh against the US on every count.
What the Rating Means for Federal Borrowing Costs
The Treasury funds the government by selling debt at regular auctions. A network of primary dealers is required to bid for at least a proportional share of every auction at reasonable prices.7U.S. Department of the Treasury. Primary Dealers That built-in demand gives the government a stability floor few borrowers enjoy.
In theory, a downgrade should push yields higher because investors would demand more return for slightly more risk. In practice, US downgrades have not followed that script. After the 2011 S&P cut, yields fell as money fled equities into Treasuries. After the 2023 Fitch cut, yields showed no lasting move. After the 2025 Moody’s cut, the 10-year briefly reached 4.48% and settled.
The reason is simple. Global investors, central banks, and sovereign wealth funds need liquid, high-grade debt in quantities no other issuer can match. That structural demand holds borrowing costs below what the rating alone might predict. Even so, the trajectory matters. With $38 trillion outstanding and interest costs already past $1.2 trillion, small changes in yield translate into billions.
How It Ripples Into Consumer Borrowing
The federal government’s credit standing anchors the baseline cost of borrowing across the economy. Mortgage rates track the yield on the 10-year Treasury note closely. When that yield rises, lenders typically raise the rates they charge homebuyers.7U.S. Department of the Treasury. Primary Dealers Auto loans and credit card rates follow similar logic, because banks price consumer credit partly off their own funding costs, which are anchored to Treasuries.
Rating agencies also apply a sovereign ceiling, a rule that generally prevents corporations and local governments from earning a higher rating than the national government. When S&P and Fitch cut the US to AA+, entities pegged to that ceiling faced automatic reviews. Some municipalities and government-backed enterprises were downgraded as a result. Higher borrowing costs for a city or school district show up eventually in property taxes or reduced services.
The real-world consumer impact of the past three downgrades has been more modest than headlines suggested. Mortgage rates fell after the 2011 downgrade because Treasury yields fell. Rates showed no persistent response after 2023. The bigger risk for borrowers isn’t any single downgrade but the fiscal trend underneath it. If deficits keep widening and the debt-to-GDP ratio keeps climbing, slow upward pressure on interest rates will cost borrowers real money over the life of a mortgage or car loan, whether or not another downgrade follows.