US Credit Rating Downgraded

Fitch Ratings has downgraded the United States’ credit rating from AAA, the highest level, to AA+. This decision was made due to concerns regarding the growing debt burden and eroding trust in Washington’s leadership. It comes just a few months after lawmakers put the world’s largest economy on the verge of sovereign default.

This downgrade, the first in the past ten years by a major credit rating agency, raises concerns that the ongoing political standoff over the debt limit could jeopardize the stability of the $25 trillion global treasury market. Treasury bonds are typically considered a safe asset based on the belief that America will honor its obligations. This belief helps maintain US debt securities as a benchmark for stocks and other bonds.

Although Fitch’s decision is not expected to immediately change this role, it casts doubt on America’s reputation for reliability. In its statement on Tuesday, the rating agency asserts that there has been a sustained deterioration in governance standards, including in the areas of budget and debt matters, over the past two decades.

Fitch also predicts that the federal budget deficit will rise to 6.3% of GDP in 2023, compared to 3.7% in 2022, reflecting weaker federal revenues, new spending initiatives, and a higher interest burden.

This statement has been met with some mockery, with economist Lawrence Summers calling it strange and clumsy in light of recent signs of resilience in the American economy. Treasury Secretary Janet Yellen has stated that it is arbitrary and based on outdated data.