The Fitch Ratings, a leading American credit rating agency, has downgraded the US governments credit rating from AAA to AA+, as reported by news outlet CNN on Tuesday. The downgrade was attributed to a steady deterioration in standards of governance in the country, the report said.This decision came in the wake of the recent debt ceiling crisis, during which lawmakers engaged in negotiations up until the eleventh hour, risking the possibility of the nations first default. Additionally, the January 6 insurrection was identified as a significant contributing factor in Fitch Ratings assessment of US governance.Representatives from Fitch Ratings conveyed their concerns regarding the January 6 insurrection to Biden administration officials during a meeting. The agencys rationale for the downgrade pointed to the expected fiscal deterioration in the next three years, the high and growing general government debt burden, and the erosion of governance relative to peers rated AA and AAA over the past two decades, including repeated debt limit standoffs and last-minute resolutions.Fitch clarified that their decision was not solely prompted by the recent debt ceiling standoff, but rather reflected a broader trend of steady deterioration in standards of governance over the last 20 years concerning fiscal and debt matters.Fitch downgrade gets sharp response from White House administrationThe downgrade has elicited strong reactions from the Biden administration. Treasury Secretary Janet Yellen expressed her strong disagreement with Fitch Ratings decision, saying, “The change by Fitch Ratings announced today is arbitrary and based on outdated data.”White House Press Secretary Karine Jean-Pierre echoed similar sentiments and cited concerns about Fitchs modelling, saying, “We strongly disagree with this decision.”“And its 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,” she further said.The ratings model used by Fitch declined under President Trump and then improved under President 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.— Karine Jean-Pierre (@PressSec) August 1, 2023Senate Majority Leader Chuck Schumer placed blame on House Republicans for the downgrade, attributing it to their “reckless brinksmanship and flirtation with default [that] has negative consequences for the country.”The US debt has traditionally been considered a safe haven for investors, but this rating cut suggests that its appeal has diminished. The downgrade could have wide-ranging impacts, affecting everything from mortgage rates to contracts globally. Investors might respond by selling US Treasuries, leading to an increase in yields, which, in turn, influence interest rates on various loans.Its worth noting that the last time the US debt was downgraded by a major credit rating agency was in 2011 when S&P took similar action. In both instances, raising the debt ceiling was achieved only after prolonged negotiations.
