The agency made the decision following the US government barely avoiding a default on its debt payments earlier this year and in advance of a possible government shutdown if a divided Congress cannot come up with a spending agreement for the next fiscal year.
Fitch said in a statement, “The rating downgrade of the United States reflects 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 decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
The agency, which had placed the US government’s “AAA” rating on a “negative” watch list in May added that “…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.”
Fitch noted that their projections show “…tighter credit conditions, weakening business investment, and a slowdown in consumption will push the US economy into a mild recession.”
The Biden administration and Treasury Secretary Janet Yellen disagreed with the decision, issuing separate statements that each stated that they “strongly disagree” with the downgrade. Yellen said the downgrade was “arbitrary and based on outdated data,” while White House Press Secretary Karine Jean-Pierre blamed former President Donald Trump, who has not been in office for over 2 years, and Republicans.
Jean-Pierre stated, “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.
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.”
The last time the US was downgraded by one of the “Big Three” agencies was in 2011 under then-President Barack Obama and Vice President Joe Biden when S&P downgraded the US long-term rating from its “AAA” to “AA+.”
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