WASHINGTON: Rating agency Fitch on Tuesday 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Treasury Secretary Janet Yellen disagreed with Fitch’s downgrade, in a statement that called it “arbitrary and based on outdated data.”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.
Analysts said the move shows the depth of harm caused to the United States by repeated rounds of contentious debate over the debt ceiling, which pushed the nation to the brink of default in May.
“This basically tells you the US government’s spending is a problem,” said Steven Ricchiuto, US chief economist at Mizuho Securities USA.
Fitch said repeated political standoffs and last-minute resolutions over the debt limit have eroded confidence in fiscal management. Michael Schulman, chief investment officer at Running Point Capital Advisors said the “US overall will be seen as strong but I think it’s a little chink in our armor.”