West News Wire: The United States‘ credit rating has been reduced by leading rating firm Fitch due to the country’s mounting debt and “deterioration in standards of governance,” which has sparked outrage from the White House.
One of the top three rating companies, Fitch, cut the credit rating on Tuesday from AAA to AA+, a decrease of one notch.
The US government’s borrowing costs may eventually increase as a result of the lower credit rating, which informs investors of the dangers involved in investing in a particular country’s debt.
After months of political squabbling over taxes and spending, Democrats and Republicans came to an agreement in June to raise the $31.4 trillion borrowing limit in order to prevent a financial default.
The last-minute deal to raise the limit came after Republicans used the issue as a bargaining chip to pressure President Joe Biden into cutting spending for Democratic policy priorities.
Fitch cited growing polarisation around spending and tax policy, resulting in “repeated debt limit standoffs and last-minute resolutions”, as a key rationale for the downgrade.
According to a statement released by Fitch on Tuesday, “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.”
Despite the bipartisan agreement in June to suspend the debt limit until January 2025, the rating agency continued, “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.”
Fitch also cited Washington’s lack of a “medium-term fiscal framework” and “limited progress” in resolving issues brought on by escalating social security and Medicare spending as a result of an ageing population.
The Associated Press, citing an unnamed person familiar with the situation, reported that Fitch told Biden administration officials that the January 6, 2021 riot at the Capitol was also a factor in the downgrade.
Fitch’s action, which comes after May’s warnings of a potential drop, is just the second downgrade in US credit rating history.
Following a protracted impasse over the debt ceiling in 2011, Standard & Poor’s downgraded the world’s largest economy from AAA to AA+, raising the Treasury’s borrowing costs that year by an estimated $1.3 billion.
Officials in the Biden administration harshly blasted the rating reduction.
The decision, according to Treasury Secretary Janet Yellen, was “arbitrary” and founded on out-of-date data.
Through the course of this Administration, “many of these measures, including those related to governance, have shown improvement, with the passage of bipartisan legislation to address the debt limit, make investments in infrastructure, and make other investments in America’s competitiveness,” Yellen added.
“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 said Fitch’s decision “defies reality” when the US had the “strongest recovery of any major economy in the world”, while accusing Republicans of being a threat to the economy.
