Global rating agency Fitch Ratings downgraded the US sovereign credit grade by one level – from AAA to AA+ – citing “ballooning fiscal deficits and erosion of governance” that have caused repeated debt limit emergencies over the past two decades.
The move, however, drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago.
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, Reuters reported.
With the downgrade, it becomes the second major rating agency after Standard & Poor’s to strip the US of its triple-A rating.
The downgrade led to the dollar falling across a range of currencies, stock futures ticking down and Treasury futures rising.
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.
Fitch’s downgrade: Dispute over US rating
“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Treasury Secretary Janet Yellen disagreed with Fitch’s downgrade, in a statement that called it “arbitrary and based on outdated data”.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 US 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.
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