NEW YORK: Fitch downgraded the US government’s top credit rating, a move that drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago.
Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.
Fitch had first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to finalize the review in the third quarter of this year.
With the downgrade, it becomes the second major rating agency after Standard & Poor’s to strip the United States of its triple-A rating.
The dollar fell across a range of currencies, stock futures ticked down and Treasury futures rose after the announcement. But several investors and analysts said they expected the impact of the downgrade to be limited.
Fitch’s move came two months after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement that lifted the government’s $31.4 trillion borrowing limit, ending months of political brinkmanship.
“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,” the rating agency said in a statement.
US Treasury Secretary Janet Yellen disagreed with Fitch’s downgrade, in a statement that called it “arbitrary and based on outdated data.”
The White House had a similar view, saying it “strongly disagrees with this decision”.
“It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” said White House press secretary Karine Jean-Pierre.
Fitch said repeated political standoffs and last-minute resolutions over the debt limit have eroded confidence in fiscal management.
Investors use credit ratings to assess the risk profile of companies and governments when they raise financing in debt capital markets. Generally, the lower a borrower’s rating, the higher its financing costs.
In May, Fitch placed its “AAA” rating of US sovereign debt on watch for a possible downgrade, citing downside risks, including political brinkmanship and a growing debt burden.
A Moody’s Analytics report from May said a downgrade of Treasury debt would set off a cascade of credit implications and downgrades on the debt of many other institutions.
