Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA.
Pointing to “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden.
The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.
Back in May, the agency placed the nation’s AAA rating on “negative watch”, stemming from the debt ceiling fight.
At the time, lawmakers in Washington butted heads over an agreement that would keep the federal government from running out of money.
“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 highlighted the rising general government deficit, which it anticipates will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022.
“Cuts to non-defense discretionary spending (15% of total federal spending) as agreed in the Fiscal Responsibility Act offer only a modest improvement to the medium-term fiscal outlook,” Fitch said.
The agency also noted that a combination of tightening credit conditions, weakening business investment and a slowdown in consumption could lead the economy into a “mild” recession in the fourth quarter of 2023 and first quarter of next year.
This isn’t the first time a rating agency has downgraded the U.S. Standard & Poor’s cut the nation’s credit rating to AA+ from AAA in 2011 after Washington managed to avoid a default.
At the time, the agency highlighted political risk as part of its reasoning.
The White House of course disagreed with Fitch’s downgrade.
“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,” press secretary Karine Jean-Pierre said.
In my personal opinion: it’s quite hard to claim rights to the strongest recovery of any major economy in the world after they literally shut the economy down due to Covid-19 – while simultaneously pumping businesses, households and individuals full of stimulus!
Either way, at the end of the day We The People are the ones who control our personal economies and finances by making the right choices for ourselves.