Global markets slide after Fitch downgrades US debt
From CNN's Laura He and Anna Cooban
Traders work the floor of the New York Stock Exchange on July 25. Angela Weiss/AFP/Getty Images
Global stock markets fell Wednesday after ratings agency Fitch downgraded its US credit rating, citing “a steady deterioration in standards of governance” and the American government’s growing debt burden.
Japan’s benchmark Nikkei 225 (N225) index had its worst day of the year, ending down 2.3%, while Hong Kong’s Hang Seng (HSI) Index closed down 2.5%, after Fitch cut its rating on US debt to AA+ from AAA on Tuesday.
European stocks fared a little better but the region’s benchmark Stoxx 600 index fell 1.4% by 5.57 a.m. ET to its lowest level in two weeks. Germany’s DAX (DAX) dropped 1.4% and France’s CAC (CAC40) 40 fell 1.2%, while London’s FTSE 100 (UKX) also hit a two-week low, down 1.5%.
US stock futures slipped. The S&P 500 index was down 0.8% and the Nasdaq down 1.2% in pre-market. But US Treasuries prices ticked higher, shaving a couple of points off the 10-year yield to 4.03%.
21 min ago
What happened the last time America's credit rating was downgraded?
The last time the US debt was downgraded by another major credit rating agency, S&P, came in 2011. In both cases, the limit was raised only after protracted negotiations.
The last downgrade happened on a Friday afternoon, so investors had a weekend to think about their next move. It didn't help.
On the first trading day after the downgrade the S&P 500 plummeted by 6.5%. Markets had their most volatile week since the global financial meltdown in 2008, and it took another six months for stocks to climb back up to their previous highs.
Until 2011, US debt had carried a perfect credit rating since Moody’s Investors Service first assigned the United States a AAA rating in 1917. The country’s new Fitch rating puts it on par with Austria and Finland but below Switzerland and Germany.
S&P has maintained its AA+ rating on the US after the 2011 downgrade while Moody’s has kept its AAA rating.
1 min ago
How Washington reacted to the downgrade
View of The White House in Washington DC on October 20, 2022. Jakub Porzycki/NurPhoto/Getty Images
Biden administration officials objected to the ratings cut.
“I strongly disagree with Fitch Ratings’ decision,” said Treasury Secretary Janet Yellen in a statement on Tuesday. “The change by Fitch Ratings announced today is arbitrary and based on outdated data.”
White House press Secretary Karine Jean-Pierre said in a statement that “we strongly disagree with this decision,” and cited similar concerns about Fitch’s modeling.
“And it’s clear that extremism by Republican officials—from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy,” she added.
Senate Majority Leader Chuck Schumer blamed House Republicans for the downgrade, saying in statement that their “reckless brinksmanship and flirtation with default has negative consequences for the country.”
Spokespeople for House Speaker Kevin McCarthy did not immediately return requests for comment on Fitch’s downgrade.
28 min ago
Why Fitch downgraded America's credit rating
US debt has long been considered the safest of safe havens, but Tuesday’s rating cut suggests it has lost some of its luster. The downgrade has potential reverberations on everything from the mortgage rates Americans pay on their homes to contracts carried out all across the world.
Explaining its rationale for the downgrade,Fitch pointed to “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
Fitch said the decision wasn’t just prompted by the latest debt ceiling standoff but rather “a steady deterioration in standards of governance over the last 20 years” regarding “fiscal and debt matters.”
A downgrade is an extremely rare and serious situation. But most economists shrugged off Fitch's action, noting that American debt remains the world's safest place to invest.
"This is completely absurd," tweeted economist Jason Furman.
"I am very puzzled by many aspects of this announcement, as well as by the timing ... Overall, this announcement is much more likely to be dismissed than have a lasting disruptive impact on the US economy and markets," wrote Mohamed El-Erian.
Calling the decision "off base," Mark Zandi wrote: "Ask global investors whose bonds they would rather own if push comes to shove in the global economy - it’s those of the U.S. Treasury."
"It doesn't make sense even on their own stated criteria," wrote Paul Krugman. "There's surely a story behind this — but whatever it is, it's a story about Fitch, not about U.S. solvency."
Former US Treasury Secretary, Larry Summers, tweeted that "The United States faces serious long-run fiscal challenges. But the decision of a credit rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept."
11 min ago
Fitch downgrades US debt on debt ceiling drama and Jan. 6 insurrection
Fitch Ratings downgraded its US debt rating on Tuesday from the highest AAA rating to AA+, citing “a steady deterioration in standards of governance.”
The downgrade comes after lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default. But the January 6 insurrection was also a major contributing factor.
In a meeting with Biden administration officials, representatives from Fitch Ratings repeatedly highlighted the January 6th insurrection as a significant concern as it relates to US governance, a person familiar with the matter told CNN. The credit agency did not mention the insurrection in their full report on the downgrade.
Global stock markets fell Wednesday. Japan’s benchmark Nikkei 225 index had its worst day of the year. The reaction was more muted in Europe and in the United States, where Dow futures were down modestly, and US Treasuries were holding steady.
The downgrade comes after lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default. But the January 6 insurrection was also a major contributing factor.
Traders work the floor of the New York Stock Exchange on July 25. Angela Weiss/AFP/Getty Images
Global stock markets fell Wednesday after ratings agency Fitch downgraded its US credit rating, citing “a steady deterioration in standards of governance” and the American government’s growing debt burden.
Japan’s benchmark Nikkei 225 (N225) index had its worst day of the year, ending down 2.3%, while Hong Kong’s Hang Seng (HSI) Index closed down 2.5%, after Fitch cut its rating on US debt to AA+ from AAA on Tuesday.
European stocks fared a little better but the region’s benchmark Stoxx 600 index fell 1.4% by 5.57 a.m. ET to its lowest level in two weeks. Germany’s DAX (DAX) dropped 1.4% and France’s CAC (CAC40) 40 fell 1.2%, while London’s FTSE 100 (UKX) also hit a two-week low, down 1.5%.
US stock futures slipped. The S&P 500 index was down 0.8% and the Nasdaq down 1.2% in pre-market. But US Treasuries prices ticked higher, shaving a couple of points off the 10-year yield to 4.03%.
The last time the US debt was downgraded by another major credit rating agency, S&P, came in 2011. In both cases, the limit was raised only after protracted negotiations.
The last downgrade happened on a Friday afternoon, so investors had a weekend to think about their next move. It didn't help.
On the first trading day after the downgrade the S&P 500 plummeted by 6.5%. Markets had their most volatile week since the global financial meltdown in 2008, and it took another six months for stocks to climb back up to their previous highs.
Until 2011, US debt had carried a perfect credit rating since Moody’s Investors Service first assigned the United States a AAA rating in 1917. The country’s new Fitch rating puts it on par with Austria and Finland but below Switzerland and Germany.
S&P has maintained its AA+ rating on the US after the 2011 downgrade while Moody’s has kept its AAA rating.
View of The White House in Washington DC on October 20, 2022. Jakub Porzycki/NurPhoto/Getty Images
Biden administration officials objected to the ratings cut.
“I strongly disagree with Fitch Ratings’ decision,” said Treasury Secretary Janet Yellen in a statement on Tuesday. “The change by Fitch Ratings announced today is arbitrary and based on outdated data.”
White House press Secretary Karine Jean-Pierre said in a statement that “we strongly disagree with this decision,” and cited similar concerns about Fitch’s modeling.
“And it’s clear that extremism by Republican officials—from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy,” she added.
Senate Majority Leader Chuck Schumer blamed House Republicans for the downgrade, saying in statement that their “reckless brinksmanship and flirtation with default has negative consequences for the country.”
Spokespeople for House Speaker Kevin McCarthy did not immediately return requests for comment on Fitch’s downgrade.
US debt has long been considered the safest of safe havens, but Tuesday’s rating cut suggests it has lost some of its luster. The downgrade has potential reverberations on everything from the mortgage rates Americans pay on their homes to contracts carried out all across the world.
Explaining its rationale for the downgrade,Fitch pointed to “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
Fitch said the decision wasn’t just prompted by the latest debt ceiling standoff but rather “a steady deterioration in standards of governance over the last 20 years” regarding “fiscal and debt matters.”
A downgrade is an extremely rare and serious situation. But most economists shrugged off Fitch's action, noting that American debt remains the world's safest place to invest.
"This is completely absurd," tweeted economist Jason Furman.
"I am very puzzled by many aspects of this announcement, as well as by the timing ... Overall, this announcement is much more likely to be dismissed than have a lasting disruptive impact on the US economy and markets," wrote Mohamed El-Erian.
Calling the decision "off base," Mark Zandi wrote: "Ask global investors whose bonds they would rather own if push comes to shove in the global economy - it’s those of the U.S. Treasury."
"It doesn't make sense even on their own stated criteria," wrote Paul Krugman. "There's surely a story behind this — but whatever it is, it's a story about Fitch, not about U.S. solvency."
Former US Treasury Secretary, Larry Summers, tweeted that "The United States faces serious long-run fiscal challenges. But the decision of a credit rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept."
Fitch Ratings downgraded its US debt rating on Tuesday from the highest AAA rating to AA+, citing “a steady deterioration in standards of governance.”
The downgrade comes after lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default. But the January 6 insurrection was also a major contributing factor.
In a meeting with Biden administration officials, representatives from Fitch Ratings repeatedly highlighted the January 6th insurrection as a significant concern as it relates to US governance, a person familiar with the matter told CNN. The credit agency did not mention the insurrection in their full report on the downgrade.
