Moody’s downgrades US credit rating: What it means for the global economy and India

The American economy has received a major blow as Moody’s Investors Service downgraded the United States’ credit rating, citing growing concerns over the country's rising debt and political instability. For the first time since 1919, the US has lost its last top-tier ‘AAA’ rating from Moody’s, which has now been lowered to ‘AA1.’ This follows earlier downgrades by other agencies like Fitch and S&P Global.

The downgrade comes at a time when the US national debt has crossed $36 trillion. Interest payments on this debt have become one of the government’s largest expenses, even more than its defense budget. According to reports, the country’s fiscal deficit reached 6.4% of its GDP in 2024, which is unusually high outside of wartime.

Moody’s has also highlighted the lack of political agreement in Washington as a key reason for the downgrade. Lawmakers continue to clash over tax policies and spending bills, with no clear plan in place to control the rising debt. A recent proposal that included extending tax cuts and funding for border wall construction was blocked, showing the deep divisions in US governance.

This downgrade could make it more expensive for the US government to borrow money, as lenders may now demand higher interest rates. It might also create uncertainty in financial markets, making investors nervous and possibly causing volatility in stock and bond prices.

For India and other emerging economies, the impact could be mixed. On one hand, a weaker US economy may reduce global confidence in the dollar, which could strengthen currencies like the Indian rupee. On the other hand, there may be opportunities for India as investors look to shift their money to more stable or faster-growing markets. This could lead to increased foreign investment in Indian stocks, bonds, and infrastructure.

At the same time, changes in global borrowing costs and trade conditions might affect India’s exports and imports. If the US economy slows down, demand for Indian goods could drop. However, India might also benefit from more attention as a stable economic destination amid global uncertainty.

Overall, while the US credit rating cut is a warning sign for the global economy, it also creates a moment of opportunity and caution for countries like India. As the situation develops, financial planners and policymakers around the world will be watching closely.