Moody's downgraded the U.S. credit rating, and the financial market faces a black swan event.

On May 16, 2025, after the close of the U.S. stock market, the international rating giant Moody's dropped a bombshell: it officially downgraded the U.S. sovereign credit rating from "Aaa" to "Aa1," signaling the country's exit from the club of nations with the highest creditworthiness. With this move, all three major global rating agencies, S&P (2011), Fitch (2023), and now Moody's, have successively downgraded the U.S. This historic juncture marks the complete dissolution of the American credit myth.

Debt Out of Control, Grim Fiscal Outlook

In a 30-page report, Moody's did not shy away from highlighting the U.S. government's fiscal chasm: "Fiscal policy lacks consistency, as Congress and the government have been unable to agree on structural fiscal reforms for years." The report shows that the ratio of U.S. federal debt to GDP has already reached 98%, and if current policies go unchanged, this ratio will soar to 134% by 2035. This ongoing expansion of debt is eroding the market's confidence in the dollar as the global reserve currency.

Political Strife Undermines Economic Governance

The downgrade sparked intense reactions in American political circles. The White House quickly retaliated, with Communications Director Steven Cheung accusing Moody's Chief Economist Mark Zandi of having anti-Trump tendencies and attempting to politicize economic issues. However, this response fails to mask the reality of ineffective governance. Former Trump adviser Stephen Moore stated, "If U.S. debt isn't AAA, then what is?" This comment, in fact, exposes deep-seated concerns about the shaky status of the U.S. economy.

Financial Market Ripple Effect Emerges

Although the rating change occurred after the U.S. stock market closed, the market was already abuzz. Last Friday, long-term U.S. Treasury yields jumped by 5 basis points, which Mischler Financial Managing Director Tom Di Galoma called "a wholly unexpected big news." Several hedge funds have warned that 30-year U.S. Treasuries could face larger sell-off risks. Infrastructure Capital Advisors Chief Investment Officer Jay Hatfield pointed out that an already weakened market due to U.S.-China trade tensions faces added pressure from the downgrade.

On Monday, May 19, during Asian trading hours, futures of the three major U.S. stock indices all fell. S&P 500 futures dropped 0.77%, and Nasdaq futures fell by 0.86%. Meanwhile, spot gold, a safe-haven asset, surged, reaching a peak of $3,235.09 per ounce, marking a gain of over 1%.

Deficit Trap and Fiscal Vicious Cycle

Moody's report also directly pointed out the policy paradox of the Trump era: promising to cut deficits while continuing the 2017 tax cuts. According to estimates by a non-partisan think tank, this policy could inflate U.S. debt by another $4 trillion. Senate Democratic Leader Chuck Schumer unreservedly stated, "This is a wake-up call for deficit hawks."

The recently passed $95 billion overseas aid package further reveals the U.S. government's inability to control spending, highlighting the deep-seated dilemma of a "tax cut—borrowing—military expansion" vicious cycle.

Dollar's Credit Foundation May Be Shaken

This downgrade not only serves as a warning about domestic policy failure in the U.S. but could also act as a catalyst for changes in the global financial order. The downgrade will likely expedite the process of central banks around the world diversifying their foreign exchange reserves. Especially against the backdrop of the U.S. imposing tariffs on the high-tech and new energy sectors of major Asian countries, the combination of trade protectionism and fiscal deterioration could bring uncertainty to the global economy.

Moody's analysts have privately disclosed that if trade tensions escalate, dragging down economic growth, the U.S. debt-to-GDP ratio might cross the warning threshold of 110% before 2025.

Conclusion: Crisis as an Opportunity for Reform?

The U.S. now stands at a historical crossroads: will it continue to sink into the mire of political division and fiscal deterioration, or will it seize this moment to push for bipartisan tax and budget system reforms? Although the current situation is far from optimistic, the downgrade at least serves as a wake-up call for the world. As the consensus of "risk-free U.S. debt" begins to crumble, the global financial order is quietly entering a new era without an "anchor."

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.