In a move provoking opposition from the White House, prominent ratings agency Fitch has downgraded the US credit rating due to rising national debt and an alleged “deterioration in standards of governance.”
Fitch, being one of the industry’s “big three,” lowered the credit rating to AA+ from the top tier AAA rating on Tuesday. A downgrade in credit rating can elevate the borrowing costs for the government, making it more expensive to finance public debt. This action follows an agreement in June between the Democrats and Republicans which averted a debt default by raising the $31.4 trillion borrowing ceiling.
Republicans had used the threat of a debt default as leverage to coerce President Joe Biden into trimming spending on Democratic policy agendas. Fitch’s downgrade, in turn, points to the “repeated debt limit standoffs and last-minute resolutions” attributed to an increasing polarization around spending and tax policy. “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,” Fitch announced in a statement.
Furthermore, the agency expressed concern over the US’s lack of a “medium-term fiscal framework” and its “limited progress” in tackling rising social security and Medicare costs linked to an aging population. An anonymous source reported to The Associated Press that the infamous Capitol riot on January 6, 2021, also contributed to Fitch’s decision.
Administration officials from the White House have pushed back on the downgrade, labeling it as “absurd.” Treasury Secretary Janet Yellen referred to the decision as “arbitrary” and based on outdated data, stating: “Fitch’s decision does not change what Americans, investors and people all around the world already know: that Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong.” White House Press Secretary Karine Jean-Pierre labeled Fitch’s verdict as one that “defies reality.”
