WASHINGTON D.C. - Just as President Donald Trump returned stateside aboard Air Force One, fresh from a Middle East tour where he secured pledges of trillions of dollars in investment, a stark economic reality crashed down: Moody's Investors Service downgraded the United States' credit rating. The agency lowered the nation's long-term issuer and senior unsecured debt ratings to Aa1 from the top-tier Aaa, citing the rapidly growing government debt burden that threatens to derail the administration's plans for tax cuts aimed at boosting the economy.

This move by Moody's on Thursday marks the completion of a concerning trend, making it the third major credit rating agency to strip the U.S. of its pristine AAA rating. Standard & Poor's (S&P) downgraded the U.S. in 2011, followed by Fitch Ratings in 2023. The simultaneous downgrades from all three major agencies paint a worrying picture of the nation's fiscal health.

Moody's articulated its rationale in a press release, stating, "The downgrade reflects Moody's expectation of continued significant fiscal deficits that will further erode fiscal strength of the U.S. government." The agency highlighted the consistent fiscal deficits over the past decade, where government spending has outpaced revenue. This trend, coupled with rising interest rates, has led to a substantial increase in the interest burden on the national debt.

Furthermore, Moody's expressed skepticism about the ability of the U.S. government and Congress to implement effective measures to reverse this trajectory. "In the absence of effective fiscal policy measures to materially reduce government spending or increase revenues, Moody's expects that the government's fiscal strength will continue to weaken," the agency warned.

The sheer scale of the U.S. national debt has been a growing concern for years. According to data from the U.S. Treasury Department, as of May 15th, the total national debt stood at a staggering $36.22 trillion (approximately ₩50,726 trillion). This figure represents roughly 120% of the nation's Gross Domestic Product (GDP), a level that many economists consider unsustainable. The Treasury Department also reported that the cost of servicing this debt amounted to $684 billion in the past month alone, accounting for a significant 16% of the projected government spending for the 2025 fiscal year.

This precarious fiscal situation has already cast a shadow over President Trump's ambitious plans for further tax cuts. Even within his own Republican party, the proposal has met with resistance. On Thursday, the House Budget Committee voted down the Republican tax bill, which incorporated President Trump's tax cut proposals, by a margin of 16 to 21. This defeat came despite a last-minute plea from the President on his social media platform, Truth Social, urging Republicans to unite behind a "big and beautiful single bill." However, five fiscal conservatives within the party broke ranks, demanding deeper spending cuts, particularly to programs like Medicaid.

The credit rating downgrade is likely to further complicate the path for these tax cuts. Joseph LaVorgna, who served as the chief economist for the White House National Economic Council during President Trump's first term, suggested in a Bloomberg interview that the timing of Moody's announcement might be politically motivated. Nevertheless, he acknowledged that "fiscal hawks will use this as further ammunition for their argument that we need to be more careful with the fiscal outlook."

Adding to the economic headwinds is growing concern among consumers about persistent inflation. The University of Michigan's survey released on Thursday revealed that the one-year inflation expectation rose to 7.3% in May, up from 6.5% in April. This is the highest level since the early 1980s. Sustained high inflation would make it difficult for the Federal Reserve to lower interest rates, a move the Trump administration likely desires to stimulate economic growth.

Furthermore, the downgrade could hinder the administration's efforts to ease capital regulations for large banks. The plan to reduce the requirement for the top eight banks to maintain a minimum of 5% of their assets in equity capital could face increased scrutiny as concerns about financial stability rise. This would limit Treasury Secretary Scott Besant's options, who has repeatedly cited tax cuts and deregulation as tools to offset the potential negative economic impacts of the administration's trade policies. The Financial Times reported on Friday that the dip in consumer sentiment reflects underlying anxieties about President Trump's trade policies.

The White House has touted President Trump's Middle East trip (May 13-16) as a resounding success, highlighting approximately $3.2 trillion (around ₩4,500 trillion) in economic cooperation agreements, including significant pledges for investment in the U.S. President Trump interpreted these commitments as a sign of confidence in the American economy. However, as the Financial Times pointed out, the domestic economic realities awaiting him upon his return paint a far less optimistic picture. The confluence of a credit rating downgrade, stalled tax cut proposals, and rising inflation expectations presents a significant challenge to the administration's economic agenda.