Fitch strips the US of its “AAA” rating

The credit rating agency Fitch Ratings has lowered the long-term debt solvency rating of the United States one notch, which now stands at ‘AA+’ from ‘AAA’ with a stable outlook, as a reflection of the expected fiscal deterioration over the next few three years and the high and growing debt burden of the Government.

Likewise, the risk rating agency has explained that its decision also takes into account “the erosion of governance” in relation to other sovereign issuers rated ‘AA’ and ‘AAA’ during the last two decades, as has been manifested in repeated confrontations about debt limits and last-minute resolutions.

In this way, Fitch has fulfilled its threat to lower the rating of the world’s leading economy, which it had placed on negative watch last May during the latest political crisis, in order to suspend the debt ceiling. Following the decision announced by Fitch Ratings, only Moody’s maintains the highest solvency grade for the long-term debt of the United States, after S&P Global downgraded the country’s rating in 2011.

In its analysis, Fitch has pointed to the fiscal challenges facing the United States over the next decade, warning that higher interest rates and rising debt stocks will increase the interest service burden, while an aging population and rising health care costs will increase spending in the absence of fiscal policy reforms.

In addition, the agency has warned that the 2017 tax cuts will expire in 2025, although there is likely to be political pressure to make them permanent, as has been the case in the past, resulting in higher deficit projections.

On the other hand, the risk rating agency expects that the US economy will enter a recession at the end of 2023 and the beginning of next year as a result of stricter credit conditions, the weakening of business investment and the slowdown in consumption. The agency expects US real GDP annual growth to slow to 1.2 % this year from 2.1 % in 2022 and growth to just 0.5 % in 2024.

Fitch’s decision is considered arbitrary

For her part, the US Treasury Secretary, Janet Yellen, has criticized Fitch’s decision to lower the US rating. “I strongly disagree with Fitch Ratings’ decision. The Fitch Ratings change announced today is arbitrary and based on outdated data,” Yellen said.

In any case, for Yellen, Fitch’s decision “does not change” the view of Americans, investors and people around the world about US Treasury-issued debt as the world’s preeminent safe and liquid asset. “The US economy remains the largest and most dynamic economy in the world, with the deepest and most liquid financial markets in the world,” he stressed.

Source: dpa

(Reference image source: Lukas Zischke, Unsplash)

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