Fitch Ratings has downgraded the United States’ debt rating. Biden officials call the downgrade decision “bizarre and baseless.” Both the White House and U.S. Treasury Secretary Janet Yellen strongly disagreed with the downgrade decision. Yellen claimed that the change by Fitch Ratings “is arbitrary and based on outdated data.”
Fitch Downgrades US Rating
Fitch Ratings, one of the three largest credit rating agencies in the U.S., downgraded the United States’ long-term foreign-currency issuer default rating from AAA to AA+ on Tuesday. The rating agency explained:
The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years.
It also reflects “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,” Fitch added.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” the rating agency detailed. Moreover, Fitch explained that in its 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.”
In addition, Fitch described:
We expect the general government (GG) deficit to rise to 6.3% of GDP in 2023, from 3.7% in 2022, reflecting cyclically weaker federal revenues, new spending initiatives and a higher interest burden.
The rating agency placed the country’s credit rating on negative watch in May, citing the debt ceiling fight in Washington. Despite the U.S. successfully avoiding default on its debt obligations in June, Fitch maintained the negative watch. However, in its announcement on Tuesday, Fitch clarified that the negative watch on the U.S. has been removed, and a “stable outlook” has been assigned.
White House, Biden Officials, and Yellen Disagree
Following the rating downgrade, officials from the Biden administration told journalists that the governance issues highlighted by Fitch occurred during former President Donald Trump’s administration. Noting that Fitch had maintained a AAA rating during that period, a senior Biden official said: “This is a bizarre and baseless decision for Fitch to make now … It simply defies common sense to take this downgrade as a result of what was really a mess caused by the last administration and reckless actions by congressional Republicans.”
The White House also released a statement following Fitch’s decision. “We strongly disagree with this decision,” White House Press Secretary Karine Jean-Pierre said. “The ratings model used by Fitch declined under President Trump and then improved under President Biden, and 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.”
Treasury Secretary Janet Yellen also released a statement regarding the downgrade. She stated:
I strongly disagree with Fitch Ratings’ decision. 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,” Yellen explained. “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.”
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