{"id":43296,"date":"2023-08-01T23:03:42","date_gmt":"2023-08-02T03:03:42","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/fitch-downgrades-u-s-credit-rating\/"},"modified":"2023-08-01T23:03:43","modified_gmt":"2023-08-02T03:03:43","slug":"fitch-downgrades-u-s-credit-rating","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=43296","title":{"rendered":"Fitch Downgrades U.S. Credit Rating"},"content":{"rendered":"
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Fitch Ratings has downgraded the U.S. government\u2019s long-term foreign-currency default rating to AA+ from AAA.<\/p>\n

The ratings agency said Tuesday the downgrade on the U.S.\u2019s primary rating reflects \u201cthe expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to \u2018AA\u2019 and \u2018AAA\u2019 rated peers over the last two decades.\u201d <\/p>\n

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Fitch also cited repeated debt limit standoffs and last-minute resolutions.<\/p>\n

The downgrade comes more than two months after Washington lawmakers struck a deal in late May to lift the country\u2019s borrowing limit. That drawn-out fight had raised the risk of default and prompted Fitch to put the U.S. credit rating on its negative watch list, where it remained even after the agreement was finalized.<\/p>\n

It wasn\u2019t immediately clear why the firm decided to formally downgrade on Tuesday. The debt-ceiling deal passed at the start of the summer with bipartisan support, lifted the debt limit for two years, and capped some federal spending in the meantime. And the economy overall has appeared to be on firmer ground in recent weeks, with inflation slowing and growth coming in stronger than expected.<\/p>\n

\u201cI am very puzzled by many aspects of this announcement, as well as by the timing,\u201d economist Mohamed El-Erian, chief economic advisor at
\n Allianz
\n and chair of Gramercy Funds Management, wrote <\/a>shortly after the announcement. <\/p>\n

The move was immediately criticized by the White House, which said in a statement that it strongly disagreed with the decision. <\/p>\n

Treasury Secretary Janet Yellen said the move was arbitrary and based on outdated data. She noted that several factors on which Fitch made its decision\u2014including governance concerns\u2014\u201chave shown improvement over the course of this administration.\u201d<\/p>\n

In its decision, Fitch noted that unlike most of its peers, the U.S. government lacks a medium-term fiscal framework and has a complex budgeting process. Those factors, along with economic shocks, tax cuts, and new spending initiatives, have contributed to \u201csuccessive debt increases over the last decade.\u201d<\/p>\n

The ratings agency also pointed out that only limited progress has been made in tackling challenges related to rising Social Security and Medicare costs, which are on track to continue soaring as the population ages.<\/p>\n

Fitch\u2019s decision means two of the three major credit ratings firms now have a less than top-tier rating on U.S. debt, with only Moody\u2019s Investors Service holding it at AAA and stable. Standard & Poor\u2019s downgraded the U.S. rating to AA+ after a 2011 fight over the debt ceiling and has yet to readjust it.<\/p>\n

That means that on average, the U.S. now holds a rating below AAA\u2014a fact that wasn\u2019t true when only one agency had downgraded it, but is now that two have. <\/p>\n

The decline in the average could carry some impact if investors or major funds have provisions regarding average ratings, said Wendy Edelberg, a senior fellow in economic studies at the Brookings Institution. But even then, she adds, given how highly rated U.S. debt remains, the impact could be muted.<\/p>\n

Other economists dismissed the potential for economic and market impact even further. Some highlighted how Fitch isn\u2019t as closely watched as Moody\u2019s or S&P, whose own downgrade more than a decade ago ultimately mattered little in the long run.<\/p>\n

\u201cInvestors are sophisticated and don\u2019t take their cues from ratings firms on something as well understood as U.S. Treasuries,\u201d says Jason Furman, a Harvard economist. \u201cI expect this to have no economic impact, more of a political talking point.\u201d<\/p>\n

Indeed, the downgrade immediately emerged as a flashpoint in Washington, where Democratic lawmakers and the White House pinned the blame on Republicans for, as Senate Majority Leader Chuck Schumer put it, \u201creckless brinkmanship and flirtation with default.\u201d<\/p>\n

Over the longer term, the decision could provide ammunition to lawmakers on both sides of the aisle who want to see the government address the size of its debt. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said in a statement Tuesday evening that Fitch\u2019s move should serve to highlight how the U.S. is on an unsustainable fiscal path.<\/p>\n

\u201cToday\u2019s downgrade should be a wake-up call,\u201d MacGuineas said. \u201cWe need to get our country\u2019s fiscal and political house in order.\u201d<\/p>\n

Write to Megan Cassella at megan.cassella@dowjones.com and Janet H. Cho at janet.cho@dowjones.com<\/p>\n<\/p><\/div>\n<\/div>\n