On Tuesday, one of the prominent credit agencies, Fitch Ratings, downgraded the United States’ Long-Term Foreign-Currency Issuer Default Rating from “AAA” to “AA+.”
The move drew swift condemnation from Biden administration officials, who expressed strong disagreement with the change.
The downgrade comes after the federal government narrowly avoided defaulting on its debt earlier this summer and ahead of a possible shutdown if a politically-divided Congress fails to reach an agreement on spending for the next fiscal year.
Explaining their decision, Fitch stated that the downgrade reflects the expected fiscal deterioration over the next three years, the high and growing general government debt burden, and the erosion of governance relative to its “AA” and “AAA” rated peers over the last two decades.
The agency noted that this erosion has manifested in repeated debt limit standoffs and last-minute resolutions.
Fitch also pointed to a steady decline in standards of governance, including fiscal and debt matters, over the past 20 years, despite a bipartisan agreement in June to suspend the debt limit until January 2025.
Fitch had previously placed the U.S. government’s “AAA” rating on a “negative” watch in May, and they now cited additional factors, such as projections indicating tighter credit conditions, weakening business investment, and a potential slowdown in consumption leading to a mild recession for the U.S. economy.
Both Treasury Secretary Janet Yellen and the White House issued separate statements strongly disagreeing with the downgrade.
Yellen called the decision “arbitrary and based on outdated data,” while White House Press Secretary Karine Jean-Pierre waded into politics, blaming Republican officials for what she described as extremism, cheerleading default, undermining governance and democracy, and seeking to extend deficit-busting tax giveaways for the wealthy and corporations, which she believes poses a threat to the economy.
It is noteworthy that this is the first time the U.S. has faced such a downgrade in more than a decade.
In 2011, S&P downgraded the U.S. long-term rating from “AAA” to “AA+” due to concerns about “political brinkmanship” and the mounting debt burden.
Today, the debt has doubled since then, surpassing $32 trillion.
In response to the downgrade, Republicans argue that it reflects the consequences of excessive spending and borrowing.
Representative David Schweikert (R-AZ) voiced concern, stating that the decision should serve as a warning about the potential consequences of unsustainable borrowing and the need to address the nation’s fiscal situation.
Fitch Ratings’ downgrade underscores the importance of fiscal responsibility and prudent financial management, issues that have long been emphasized by conservative voices.
As the U.S. grapples with economic challenges, the downgrade serves as a reminder of the need for thoughtful policy measures to ensure the nation’s financial stability and prosperity.
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