Fitch Ratings, one of the major credit rating agencies in the U.S., recently downgraded the United States’ long-term foreign-currency issuer default rating from AAA to AA+. The agency cited concerns about the expected fiscal deterioration over the next three years, a high and growing government debt burden, and a decline in governance standards compared to other highly rated peers. Fitch also expressed worry about repeated debt limit standoffs and last-minute resolutions, which have undermined confidence in fiscal management.
The rating agency expects the general government deficit to increase to 6.3% of GDP in 2023, attributing it to weaker federal revenues, new spending initiatives, and a higher interest burden. Although Fitch had put the U.S. credit rating on negative watch in May, they recently removed the negative watch and assigned a “stable outlook.”
The Biden administration strongly disagreed with Fitch’s decision. Officials argued that the governance issues highlighted by Fitch primarily occurred during the previous administration, while Fitch had maintained a AAA rating during that period. They viewed the downgrade as “bizarre and baseless,” attributing it to the mess caused by the prior administration and actions by congressional Republicans.
The White House and Treasury Secretary Janet Yellen also criticized the decision, claiming that Fitch’s ratings model had improved under President Biden’s administration. Yellen argued that the downgrade was arbitrary and based on outdated data, despite indicators showing progress in governance and other areas during Biden’s tenure.
What are your thoughts on Fitch’s downgrade of the U.S. rating? Let us know in the comments section below.
Frequently Asked Questions (FAQs) about Downgrade
1. What is the reason behind the U.S. rating downgrade by Fitch Ratings?
Fitch Ratings downgraded the U.S. rating from AAA to AA+ due to concerns about the expected fiscal deterioration over the next three years, a high and growing government debt burden, and a decline in governance standards relative to highly rated peers.
2. How did Fitch describe the impact of governance erosion on the rating downgrade?
Fitch explained that governance erosion, manifested in repeated debt limit standoffs and last-minute resolutions, has eroded confidence in fiscal management and contributed to the rating downgrade.
3. What is the projected government deficit for 2023 according to Fitch?
Fitch expects the general government deficit to rise to 6.3% of GDP in 2023, up from 3.7% in 2022, driven by weaker federal revenues, new spending initiatives, and a higher interest burden.
4. Why do Biden officials disagree with Fitch’s downgrade decision?
Biden officials argue that the governance issues highlighted by Fitch occurred during the previous administration, while Fitch maintained a AAA rating during that period. They view the downgrade as “bizarre and baseless,” attributing it to the prior administration’s actions.
5. How does the White House respond to Fitch’s decision?
The White House strongly disagrees with the decision, stating that the ratings model used by Fitch declined during the previous administration but improved under President Biden, especially with the significant economic recovery.
6. What does Treasury Secretary Janet Yellen say about the downgrade?
Janet Yellen strongly disagrees with Fitch’s decision, considering it arbitrary and based on outdated data. She emphasizes the progress made under the current administration in various indicators, including governance and addressing debt limits.
7. When was the U.S. credit rating placed on negative watch, and what is its current outlook?
Fitch placed the U.S. credit rating on negative watch in May, but in the recent announcement, they removed the negative watch and assigned a “stable outlook” to the rating.
More about Downgrade
- Fitch Downgrades US Rating
- White House and Biden Officials Respond to Downgrade
- Statement by Treasury Secretary Janet Yellen
- Understanding Credit Ratings
- How Credit Rating Agencies Work