The Last Holdout Agreed: U.S. Debt Is Unsustainable. Congress Passed a $3 Trillion Bill Anyway.

On May 16, Moody’s Ratings stripped the United States of its last perfect credit rating, downgrading sovereign long-term debt from Aaa to Aa1 and ending a 107-year run at the top of its scale. It was the third downgrade in fifteen years. S&P did it in 2011. Fitch followed in 2023. Moody’s — the holdout, the patient one, the agency that maintained its top rating through debt-ceiling brinksmanship and post-pandemic stimulus — finally agreed.

Five days later, the House of Representatives passed the One Big Beautiful Bill Act 215 to 214. The Congressional Budget Office estimates it will add approximately $3.3 trillion to the federal deficit over the next decade.

That is the story. Not Moody’s credibility, not the political calendar, not the precise methodology behind any agency’s models. The story is that Congress received the clearest possible signal from every major credit rating institution on earth that the fiscal trajectory is unsustainable — and its immediate response was to advance a bill making it worse.

Thirteen Years of Warnings

The three major credit downgrades did not happen because of partisan politics at the rating agencies. They happened under three different administrations, two Republican and one Democratic, across very different fiscal environments. S&P acted in 2011 at the height of the debt-ceiling standoff. Fitch moved in 2023 amid another round of brinkmanship. Moody’s waited through all of it before acting last week.

What the three agencies share is a consistent diagnosis. Moody’s May 16 statement was explicit: “Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.” The agency was not accusing any particular party. It was describing fifteen years of institutional paralysis — a pattern where political incentives have made deficit reduction structurally impossible regardless of which party holds power.

The numbers behind that diagnosis are severe. The current fiscal year is already running a $1.05 trillion deficit, 13 percent above the same period a year ago. Federal deficits are projected to reach nearly 9 percent of GDP by 2035, up from 6.4 percent today. Federal debt is projected to climb to approximately 134 percent of GDP from 98 percent now. Most telling: interest expense is projected to consume more than 30 percent of federal revenue by 2035, up from roughly 18 percent currently. When nearly a third of every federal dollar goes to service old debt, there is no margin left for anything else — no room for crisis response, no room for tax relief, no room for investment.

This is not a projection from an activist think tank. It is Moody’s central forecast, built on the same underlying data that Congress’s own nonpartisan scorekeepers use.

The Bill That Landed the Same Weekend

Congress’s response was fast.

Treasury Secretary Scott Bessent, appearing on CNN’s State of the Union two days after the downgrade, was direct about his view: “I don’t put much credence in the Moody’s” downgrade. Budget Director Russell Vought called the reconciliation bill a measure that “ends decades of fiscal futility.” Speaker Mike Johnson offered a more unusual take — that the downgrade itself demonstrated the need to pass the legislation.

None of those statements engaged with the substance of what Moody’s said. The Congressional Budget Office engaged with it. Its preliminary estimate of the One Big Beautiful Bill Act found it would increase deficits by approximately $3.3 trillion over ten years. The Committee for a Responsible Federal Budget, using a broader accounting of budget gimmicks and sunset provisions, put the likely range at $3.2 trillion to $5.2 trillion. These are not outlier estimates from partisan opponents of the legislation. They are the standard tools that Congress has relied on for fifty years to assess the cost of bills.

The growth argument — that faster economic expansion will offset the borrowing — is theoretically plausible. But it is the same argument made for the 2017 Tax Cuts and Jobs Act. The economy grew after 2017. Deficits still rose. The fiscal year 2019 deficit was $984 billion — $205 billion wider than the year the TCJA was enacted. Growth and deficits can coexist. They frequently do.

Dismissing Moody’s on the grounds that growth will cover the cost is not an economic argument. It is an assertion that this time will be different. The institutions that have tracked U.S. fiscal policy for decades — the CBO, the CRFB, and now all three major ratings agencies — do not believe it.

What the Senate Must Do

This is not a counsel of despair about the legislative process. The Senate’s role here is real. Republican senators Susan Collins of Maine, Lisa Murkowski of Alaska, and Josh Hawley of Missouri have already named specific objections to the House bill — on Medicaid work requirements, rural hospital funding, and the overall deficit impact. The Senate Parliamentarian’s Byrd Rule review will strip provisions that do not satisfy reconciliation standards. Some of the House bill’s most fiscally aggressive elements may not survive.

All of that is the system functioning as designed. The Senate is supposed to slow down, scrutinize, and amend. A bill that emerges from the Senate in materially better fiscal shape than what passed the House on a 215-214 vote would be a genuine improvement.

The question is whether improvement is sufficient. A bill that adds $2 trillion to the deficit over ten years instead of $3.3 trillion does not change the trajectory Moody’s described — it slows the accumulation. Federal interest expense heading toward 30 percent of revenue by 2035 is not substantially repaired if the revised bill gets it to 28 percent. The agencies have not downgraded U.S. debt because individual bills were too expensive. They have downgraded it because successive Congresses have demonstrated no institutional capacity to change the direction.

Senators with genuine fiscal concerns have an opportunity to do more than trim the margin. The bar is not “less bad.” It is a bill that actually bends the curve.

What the Rating Says About Priorities

Kevin Warsh, confirmed as Federal Reserve chair by a 54-45 vote just five days before the Moody’s action, inherited the most complex fiscal backdrop a Fed chair has faced in decades. The 10-year Treasury yield climbed to 4.56 percent on the Monday after the downgrade — its highest level since late 2023. The 30-year briefly topped 5.03 percent. Higher yields mean higher mortgage rates, higher business borrowing costs, and higher interest costs on the federal government’s own refinancing. At $36 trillion in outstanding federal debt, a sustained 10 basis point increase in the average refinancing rate adds roughly $36 billion annually to interest expense. The Fed cannot fix the fiscal trajectory. But the fiscal trajectory is making the Fed’s job harder.

None of this is Moody’s fault or Moody’s invention. The numbers are what they are. What the downgrade does is remove the last institutional pretense that the major financial rating bodies still disagree about what they see.

They no longer do. All three agencies have looked at the same trajectory — deficits rising, interest costs rising, no mechanism in place to reverse either — and come to the same conclusion. The only question left is whether that consensus, fifteen years in the making, will land differently in the Senate Finance Committee than it did in the House at 4 a.m. on a Thursday.

If the response is another dismissal dressed up as growth optimism, it’s worth being honest about what that means. Not a ratings problem. A political system that has decided it will not pay attention until it has to.