Fitch downgrades US credit ratings from AAA to AA+, Biden admin calls move ‘arbitrary’

Fitch Ratings has downgraded the US government’s credit rating from top AAA to AA+ amidst concerns over the country’s ability to handle its finances and debt burden.

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters," the rating agency said Tuesday (August 1).

It said that the US appeared to suffer from an “erosion of governance," pointing out the recent debt ceiling crisis as an example.

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This is the second time in the nation’s history that US' credit rating has been cut.

Yellen slams move

Treasury Secretary Janet Yellen, however, disagreed with Fitch’s assessment, calling the downgrade "arbitrary".

It was based on "outdated data" from the period 2018 to 2020, she said.

"Treasury securities remain the world's preeminent safe and liquid asset, and... the American economy is fundamentally strong," she said in a statement.

However, the cut will have little impact as the US still holds the highest possible rating, deemed conducive for investments.

Warnings to US govt

On May 24, theUS-based ratings agency said that it could remove the government’s triple-A rating after Congress again struggled to raise the borrowing limit.

A week later, a deal was reached that suspended the limit and cut about $1.5 trillion from the government deficit over the next decade.

Fitch cited the worsening political divisions around spending and tax policy as a key reason for its decision.

It said that the US governance has declined relative to other highly rated countries and it noted “repeated debt limit standoffs and last-minute resolutions.”

Notably, the January 6 insurrection was one of the key factors for Fitch to cut the rating, and it was informed to the Biden administration, a person familiar with the discussions between the administration and the rating agency told AP news agency.

Another factor in influencing Fitch’s decision is that it expects the US economy to slip into “mild recession” in the last three months of this year and early next year.

Fitch’s decision follows another credit rating agency, Standard & Poor's, which has already reduced the US's rating from the top AAA status to AA+ following a similar row over the debt ceiling in 2011.

(With inputs from agencies)

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