Fitch Ratings cut its top U.S. credit rating to AA+ from AAA on Tuesday, pointing to “erosion” of governance and the nation’s expected fiscal deterioration over the next three years.
Fitch said eroding governance in the U.S. over the past two decades was among the factors for its downgrade, in a Tuesday evening statement. It also said it expected the general government deficit to climb to 6.3% of gross domestic product in 2023, from 3.7% in 2022, on weaker federal revenues, new spending initiatives and a higher interest burden.
“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, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” Fitch said.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”
Fitch warned in May that it might cut the U.S.’s AAA ratings as the latest debt-ceiling fight was dragging on for months without a resolution.
Borrowing costs have climbed as the Treasury Department has unleashed a flood of Treasury issuance since its June debt-ceiling deal to restock it coffers. The 1-month Treasury yield was at 5.36% on Tuesday, while auctions of other Treasury bills maturing in one year often kick off yields north of 5%.
See: ‘Eye-popping’ $1 trillion third-quarter borrowing need from U.S. Treasury raises risk of buyers’ fatigue
Stocks ended trade Tuesday nearing record levels, with the Dow Jones Industrial Average
DJIA,
and S&P 500 index
SPX,
both less than 5% off their highest closing levels from early 2022.
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