Fitch Ratings downgraded the U.S. credit rating from AAA to AA+.
Richard Francis, a senior director at Fitch Ratings, told Reuters that the decision, which caught investors off guard, stems from fiscal worries, perceived governance decline, and increased political polarization — notably evident during the events of Jan. 6, 2021.
The rating agency’s move was based on an observed decline in U.S. governance, which, according to Francis, undermines confidence in the government’s ability to tackle fiscal and debt issues.
This decline, coupled with the growing political divide in the country, was evident in the Capitol Attack, a point that the agency emphasized in discussions with the Treasury prior to the downgrade.
“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” Francis explained.
US’s Downgrade Sparks Criticisms
The downgrade decision by Fitch was met with criticism from U.S. Treasury Secretary Janet Yellen, who dismissed it as “arbitrary and based on outdated data.”
White House economic advisor Jared Bernstein echoed this sentiment, calling the timing of the downgrade “bizarre and arbitrary.”
Fitch’s Future Outlook
When questioned about the timing of the downgrade, Francis explained that the agency wanted to thoroughly assess long-standing concerns about governance and the country’s debt profile following the recent debt deal. He also mentioned that higher interest rates could exacerbate the country’s debt burden.
For the U.S. to regain its previous rating, a combination of factors would need to occur, such as a stabilization of the debt-to-GDP ratio and possibly a permanent suspension of the debt ceiling, Francis suggested.
He did not foresee further downgrades due to any potential government shutdown in the near future.
Produced in association with Benzinga
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