Fitch cuts US government’s AAA credit rating in surprise move
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Fitch Ratings has downgraded the US credit rating, citing an expected increase in government debt over the next three years and a “steady deterioration in standards of governance” over the past two decades.
The rating was cut one notch to AA+ from AAA, the highest possible rating. The new rating is still well into investment grade.
Fitch cited the worsening political polarisation around spending and tax policy as a key reason for the downgrade.Credit: Bloomberg
Fitch cited the worsening political polarisation around spending and tax policy as a key reason for the downgrade. It said US governance has declined relative to other highly rated countries and it noted “repeated debt limit standoffs and last-minute resolutions.”
“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.
In 2011, the ratings agency Standard & Poors stripped the US of its prize AAA rating and also pointed to partisan divisions that made it difficult for the world’s biggest economy to control spending or raise taxes enough to reduce its debt.
“The change by Fitch Ratings announced today is arbitrary and based on outdated data,“: US Treasury Secretary Janet Yellen.Credit: AP
Reduced credit ratings could lead the US to pay higher interest rates on its notes, bills, and bonds.
US Treasury Secretary Janet Yellen criticised the move.
“I strongly disagree with Fitch Ratings’ decision. The change by Fitch Ratings announced today is arbitrary and based on outdated data,” Yellen said in a statement.
LPL Financial chief global strategist Quincy Krosby said the move is a warning shot to the US.
“This is a warning. Economists say that if the US doesn’t get its fiscal house in order, its currency is going to weaken, but the currency doesn’t weaken. And what Fitch is essentially saying is, it’s going to happen and the dollar is going to become a casualty.”
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