The United States has lost its top-rated 'AAA' credit rating from all three major international rating agencies, marking a historic first. Moody's Investors Service was the last to downgrade the US sovereign rating to 'Aa1' with a 'stable' outlook, following earlier downgrades by Fitch and S&P. This means the US, the world's largest economy, no longer holds a gold-standard credit rating.

Moody's attributed the downgrade to America's growing fiscal deficit and debt burden, which exceeds USD 35 trillion, surpassing its GDP of approximately USD 29 trillion. The agency pointed out that successive US governments have failed to control spending and increase revenues, and political gridlock has hindered budgetary reforms. Moody's forecasts the US deficit to rise to nearly 9% of GDP in 2035, up from 6.4% in 2024, warning that increasing interest costs will expose America to economic shocks.

A sovereign downgrade typically raises borrowing costs, leading to higher US Treasury yields, increased loan and mortgage rates for American consumers, and potential capital outflows. However, analysts believe the short-term effects will be limited. Wall Street has largely dismissed similar announcements in the past, such as the S&P downgrade in 2011, and the dollar's status as the world reserve currency provides a significant buffer. The Federal Reserve's credibility and monetary policy autonomy also offer strong protection.

Indian markets are closely monitoring the situation. While immediate jolts may be minimal, India is not entirely immune. The return of FIIs to Indian equities could be reversed by global risk aversion. A US Treasury sell-off would strengthen the dollar, devalue the rupee, and increase Indian bond yields. However, domestic fundamentals remain strong. Analysts suggest that Trump's tariff policies pose a greater concern for India than the downgrade itself.

Gold prices may rise as safe-haven demand increases. Although the Moody's downgrade is significant, it is not expected to crash the market. Instead, it serves as a warning about unsustainable debt and US policy gridlock, both for Washington policymakers and global investors. For India, immediate prospects depend more on geopolitical news and potential US policies under a Trump 2.0 administration. Markets will react, but a complete collapse is not anticipated.