Stock prices dipped significantly on Wednesday in response to the news that Fitch Ratings had downgraded the nation’s long-term foreign currency issuer default rating.
Whereas the U.S. had maintained the credit agency’s top rating of AAA, it is now listed as AA+. The downward shift came in the wake of troubling economic developments including the narrow escape of a debt default earlier this year.
Looking ahead, Fitch concluded that the outlook is tumultuous — particularly if lawmakers and the White House are unable to reach a spending agreement next year — and decided that a downgrade was appropriate.
The official move was announced on Tuesday, but Fitch had placed the U.S. on a watch list in May, so the move was not entirely surprising.
According to a statement on the matter, the agency came to its conclusion in response to “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two years that has manifested in repeated debt limit standoffs and last-minute resolutions.”
As a result of the current trajectory, Fitch predicts that “tighter credit conditions, weakening business investment, and a slowdown in consumption will push the U.S. economy into a mild recession.”
America’s most recent credit agency downgrade came 12 years ago when S&P similarly reduced the long-term rating from AAA to AA+.
Many conservative pundits and politicians cited the latest action as a consequence of the Biden administration’s fiscal policies.
$32 trillion in debt, a credit rating downgrade, and no improvement in sight.
Our kids and grandkids will pay the price.
— Mike Pompeo (@mikepompeo) August 2, 2023
For its part, the White House is attempting to put a positive spin on the news, including by pointing the finger at Republicans.
Treasury Secretary Janet Yellen asserted that Fitch’s assessment was “arbitrary and based on outdated data.”
White House press secretary Karine Jean-Pierre took a more partisan stance on the matter, claiming that former President Donald Trump is somehow to blame.
“The ratings model used by Fitch declined under President Trump and then improved under President Biden, and 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,” she said. “And it’s clear that extremism by Republican officials — from cheerleading default to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations — is a continued threat to our economy.”