Fitch Ratings downgraded the United States’ long-term foreign currency credit rating to AA+ from AAA, which drew angry responses from the White House over the decision.
The world’s top credit agency points to fiscal deterioration over the next three years and repeated debt-limit political standoffs as well as last-minute resolutions have eroded confidence in fiscal management and threaten the government’s ability to pay its debts.
The downgrade raises controversy regarding the timing that came two months after the Democrat and the Republican reached a debt ceiling agreement just days prior to the historic default that could have put the global economy into chaos. The agency did put the U.S. credit on a negative watch in May over the standoff about the debt ceiling bill.
“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 ratings agency said.
Fitch also stated that it expects the general government (GG) deficit to rise to 6.3% of GDP in 2023, from 3.7% in 2022, reflecting cyclically weaker federal revenues, new spending initiatives and a higher interest burden.
The ratings agency noted that tighter credit conditions, weakening business investment, and a slowdown in consumption will push the U.S. economy into a mild recession in 4Q23 and 1Q24, according to its projections.
U.S. Treasury Secretary Janet Yellen voiced her disagreement with Fitch’s downgrade, calling it “arbitrary and based on outdated data.”
Meanwhile, the White House also had a similar view, saying it “strongly disagrees with this decision”.
