One of the world’s largest credit agencies announced on Tuesday that it was lowering the U.S.’ long-term credit rating from “AAA” to “AA+,” citing future fiscal uncertainty.
The agency downgraded the U.S. Long-Term Foreign-Currency Issuer Default Rating following projections of fiscal deterioration over the next three years, according to a release from Fitch Ratings. Fitch points to a history of debt limit standoffs and last-minute resolutions from legislators, creating a deterioration in credit trustworthiness over the last 20 years. (RELATED: Experts See Red Flags Even As Biden Takes Victory Lap On Economic Growth)
“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,” according to the release.
Fitch also expects the federal government’s deficit to GDP to rise in 2023 to 6.3%,up from 3.7% in 2022, indicating weaker federal revenue, new spending and a higher interest burden from already existing debt, according to the release. The credit rating giant also predicts a mild recession to come in the fourth quarter of 2023 and the first quarter of 2024, with GDP expectations slowing to 1.2% this year from 2.1% in 2022 and overall growth predictions reaching 0.5% in 2024.
WASHINGTON, DC – JULY 05: Pedestrians sit at a bus shelter at Pennsylvania Avenue and 22nd Street NW where an electronic billboard and a poster display the current U.S. National debt per person and as a nation at 32 Trillion dollars on July 05, 2023 in Washington, DC. (Photo by Jemal Countess/Getty Images for the Peter G. Peterson Foundation)
“I strongly disagree with Fitch Ratings’ decision,” Secretary of the Treasury Janet Yellen said in a press release following the change. “The change by Fitch Ratings announced today is arbitrary and based on outdated data. Fitch’s quantitative ratings model declined markedly between 2018 and 2020 – and yet Fitch is announcing its change now, despite the progress that we see in many of the indicators that Fitch relies on for its decision.”
“Many of these measures, including those related to governance, have shown improvement over the course of this Administration, with the passage of bipartisan legislation to address the debt limit, invest in infrastructure, and make other investments in America’s competitiveness,” Yellen said in the press release.
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