Fitch Ratings has downgraded the United States' long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, citing "expected fiscal deterioration over the next three years," along with an erosion of governance and a growing general debt burden.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” said Fitch.
Fitch had placed the country's rating on negative watch in May, citing the debt ceiling fight in Washington, which was eventually resolved after weeks of negotiations.
The rating cut echoed a move made by S&P Global Ratings a decade ago. Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while medium-term challenges related to rising entitlement costs remain largely unaddressed.
Treasury Secretary Janet Yellen quickly responded to the downgrade, calling it “arbitrary” and “outdated.”
“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,” Yellen said in the statement.
Tuesday’s statement also attributed the downgrade to the country’s rapidly swelling debt burden, which it forecasts to reach 118 percent of gross domestic product by 2025, more than two-and-a-half times higher than the ‘AAA’ median of 39.3 percent. The rating company projects the debt-to-GDP ratio to rise even further in the longer-term, increasing America’s vulnerability to future economic shocks, the report said.
Fitch also highlights the rising government deficit, which it anticipates will rise to 6.3 percent of GDP in 2023, from 3.7 percent in 2022.
“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,” White House press secretary Karine Jean-Pierre said.
(With Inputs From Agencies.)
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