Fitch Ratings has downgraded the U.S. credit rating from AAA to AA+, the Wall Street Journal reported. This is the first downgrade of America’s creditworthiness by a major credit rating service in over a decade.
Fitch said on Tuesday that the downgrade reflects an “erosion of governance” in the U.S. relative to other top-tier economies over the last two decades.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.
Fitch expects the general government deficit to rise to 6.3% of gross domestic product in 2023 from 3.7% last year. The predicted deficit growth reflects cyclically weaker federal revenues, new spending initiatives, and a higher interest burden. The firm expects the U.S. economy to slip into a recession later this year.
Moody’s has not yet lowered the U.S.A.’s credit rating.
The White House responded strongly to the decision by Fitch.
Press Secretary Karine Jean-Pierre said that the Administration strongly disagrees with the decision by Fitch.
“We strongly disagree with this decision,” Jean-Pierre said. “The ratings model used by Fitch declined under President [Donald]Trump and then improved under President [Joe] Biden, and 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. And it’s clear that extremism by Republican officials—from cheerleading default to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy.”
“The change by Fitch Ratings announced today is arbitrary and based on outdated data,” Treasury Secretary Janet Yellen said in a statement. “Fitch’s quantitative ratings model declined markedly between 2018 and 2020 – and yet Fitch is announcing its change now, despite the progress that we see in many of the indicators that Fitch relies on for its decision. Many of these measures, including those related to governance, have shown improvement over the course of this Administration, with the passage of bipartisan legislation to address the debt limit, invest in infrastructure, and make other investments in America’s competitiveness.”
Congressman Barry Moore (R-AL02) retweeted a response from the House Freedom Caucus.
“A rundown of Fitch’s downgrade of the United States credit rating: The Biden Administration played politics with a possible government default. The @HouseGOP did our job in April by passing Limit Save Grow, but Biden waited till the last minute to negotiate.”
The U.S. is spending $1.57 trillion a year more than it is taking in revenues. The total debt has topped $32.7 trillion, and the Administration has refused to present a framework for a balanced budget within five years even though the nation is at full employment, and the U.S. is not currently at war. The cost of servicing the debt is $652 million a year and climbing.
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