In a major blow to the Biden administration, the United States credit rating has been downgraded.
On August 2, 20223, Fitch Ratings became the second major ratings agency to downgrade the United States’ debt rating after it was stripped of its triple-A rating. The downgrade comes two months after President Biden and the House of Representatives agreed to a debt ceiling agreement in order to avoid a possible government shutdown.
Fitch had first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to finalize the review in the third quarter of this year. The downgrade today has put the US at a ‘AA+’ rating.
“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.
The White House is freaking out.
In a statement, the Biden administration said it “strongly disagrees with this decision”.
U.S. Treasury Secretary Janet Yellen disagreed with Fitch’s downgrade in a statement that called it “arbitrary and based on outdated data.”
U.S. stock futures also dropped in European trading, suggesting further market impact. Yields on the benchmark US Treasury note fell slightly on the day to 4.03%, while the cost of insuring US sovereign debt against default held steady.
“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,” said White House press secretary Karine Jean-Pierre.
A Reuters report added that the downgrade could have an impact on the US borrowing costs. Generally, a lower rating would increase the borrowing costs for the government and companies as investors would demand higher yields in order to assume the additional risk.
BIDENOMICS:
“Fitch has downgraded the U.S. credit rating to AA+ from AAA,” a ranking the U.S. had held at Fitch since 1994. pic.twitter.com/J7oPMi7Wip
— RNC Research (@RNCResearch) August 1, 2023
