The American credit rating agency Fitch demoted the United States’ top-notch credit rating by a step from AAA to AA+, noting that it reflects the expected fiscal deterioration.
Fitch downgraded the United States top-notch credit rating by a step on Tuesday, citing a growing federal debt burden and an “erosion of governance” that has manifested in debt limit standoffs.
The decision to downgrade the US from AAA to AA+ sparked a fiery rebuttal from the White House, with press secretary Karine Jean-Pierre saying the move “defies reality.”
In a separate statement, Treasury Secretary Janet Yellen said that she “strongly” disagreed with Fitch as well, calling the change “arbitrary and based on outdated data.”
It is the first such downgrade by a major rating company in more than a decade. A debt ceiling impasse in 2011 saw S&P lower Washington’s AAA rating, drawing bipartisan outrage.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” relative to peers, said Fitch Ratings on Tuesday.
While lifting the US debt ceiling, a limit on government borrowing to pay for bills already incurred, was often routine, it has become a contentious partisan issue for several years.
There is a “clear short-run implication” of the downgrade involving higher bond yields and a potential sell-off in the stock market and the dollar, said Mickey Levy of Berenberg Capital Markets.
But he does not expect long-run ramifications, even if it could lead some investors to reduce their Treasury exposure in the near term.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters,” the agency said Tuesday.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch added.
It also said the US government “lacks a medium-term fiscal framework” and has seen only “limited progress” in tackling challenges related to rising social security and Medicare costs as the population ages.
This year, hard-right Republicans, dominating their party’s narrow majority in the House of Representatives, decided to use the debt limit vote as leverage for forcing President Joe Biden into accepting cuts to many Democratic spending priorities.
Miroslava Salazar with AFP
