Aswath Damodaran

On May 16, 2025, Moody’s downgraded the US from Aaa to Aa1, joining Fitch and S&P in making that assessment. In this session, I discuss the causes and consequences of sovereign default and how sovereign ratings capture default risk (well, in the aggregate, but often too late to make a difference). I look at the market reaction to the downgrade, which was muted, and argue that that reaction can be explained by the fact that the downgrade was small and not much of a surprise. That said, the downgrade may operate as a longer term, symbolic signal that American exceptionalism, which has allowed the United States to act economically and politically in ways that other countries could not, is drawing to an end.