US Debt Rating Downgrade: Assessing the Ramifications for Financial Markets
Tuesday marked two months since Congress and the White House narrowly prevented the country from defaulting on its debt commitments. Fitch Ratings lowered the United States’ credit rating from AAA to AA+.
Investors have not been alarmed by the rating downgrade as much as they have in the past, but the decision has dimmed economic expectations and changed the likelihood of a recession. Details concerning the rating adjustment are provided below.
One of the biggest credit rating companies, Fitch Ratings, reduced the United States’ credit rating on Tuesday, more than two months after placing it on “negative watch” during the tense but successful debt ceiling discussions. U.S. debt is now regarded as “stable” and has been taken off “negative watch” as a result of the rating adjustment. Since Standard & Poor’s downgraded the United States from AAA to AA+ in 2011, Fitch’s action was the first downgrade of U.S. debt by any agency.
The debt rating was reduced, according to Fitch, because of a “steady decline in governance standards over the last 20 years.”
Fitch said in a statement that the government, unlike most of its peers, lacks a medium-term fiscal framework and that its budgeting process is challenging, both of which have caused debt to increase repeatedly over the past ten years. In response, the statement stated that “repeated political battles over the debt limit and last-minute agreements have eroded confidence in fiscal management.”
The White House expressed its displeasure with the rating downgrade in a statement, stating that it “strongly” disagrees with Fitch’s assessment of the future for US debt and blames the Trump administration for recent problems.
It defies reality to downgrade the United States at a time when President Biden has delivered the strongest recovery of any major economy in the world, White House press secretary Karine Jean-Pierre said in a statement on Tuesday.
“We strongly disagree with this decision. Under President Trump, the Fitch ratings methodology suffered, but it recovered under President Biden. The rating reduction occurs just as the White House is promoting “Bidenomics.”