Fitch Downgrades U.S Credit Rating From AAA to AA+ Citing Fiscal Deterioration, Erosion Of Governance And Mounting Debts

Fitch Ratings on Tuesday (ug 1) downgraded America’s long-term foreign-currency-issuer default rating, citing ongoing and projected future fiscal instability, an increasingly long and disruptive governance process, and rising debt and deficits.

"The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions." the rating agency said.

Investors use credit ratings as a benchmark for judging how risky it is to lend money to a government. 

Fitch said that the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management of the country.

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 Fitch projections. 

Among the others factors the agency said were making the U.S. less reliable to honor its obligations are the Federal Reserve tightening monetary conditions via interest-rate increases to combat inflation. The central bank also continues to shed its massive balance sheet of mortgage-backed securities and U.S. Treasuries, furthering fostering an environment of tighter credit, Fitch said.

The economy, the agency noted, is expected to slip into a “mild recession” in the fourth quarter of 2023.

Biden administration officials criticised the ratings cut.

“I strongly disagree with Fitch Ratings’ decision,” said Treasury Secretary Janet Yellen in a statement on Tuesday. “The change by Fitch Ratings announced today is arbitrary and based on outdated data.”

White House press Secretary Karine Jean-Pierre said in a statement that “we strongly disagree with this decision,” and cited similar concerns about Fitch’s modeling.