Business News

Fitch Ratings Downgrades US Credit Rating

Published

2 years ago

August 2, 2023

Fitch Ratings Downgrades US Credit Rating Biden Shifts the Blame. Fitch Ratings has downgraded the United States’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘AA+’ from ‘AAA’. The decision by Fitch comes amid concerns over the country’s fiscal deterioration, high and growing debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers. This blog post will examine the key rating drivers behind this recent downgrade of the United States’ credit rating.

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Fitch Ratings has cited multiple key rating drivers behind this downgrade. Firstly, the expected fiscal deterioration over the next three years is causing major concerns. The government lacks a medium-term fiscal framework and has a complex budgeting process. Most of its peers have a medium-term fiscal framework in place that helps to monitor and adjust fiscal policy over the medium term. However, the lack of this framework in the United States has contributed to successive debt increases over the last decade.

Fitch Ratings Downgrades US Credit Rating as Biden Shifts the Blame

Secondly, the country’s high and growing general government debt burden is also a major concern. The debt is expected to increase even further due to the continued economic shock from Covid-19. Additionally, tax cuts and new spending initiatives have contributed to successive debt increases over the last decade. The credit rating downgrade means that business may have less access to capital. Without capital layoffs and recession could be on the horizon. The credit downgrade is not mitigated by revenue-raising measures alone. The issues are the Biden administration has yet to outline comprehensive plans to address its debt burden.

Thirdly, Fitch Ratings has noted the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades. There has been a lack of standards of governance, including on fiscal and debt matters. The government has repeatedly faced debt limit standoffs and last-minute resolutions, eroding confidence in fiscal management. Furthermore, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.

Fourthly, the country’s economic shocks as well as tax cuts and new spending initiatives have contributed to successive debt increases. Although the United States has a large and diverse economy, with a high-income level and robust institutions, these shocks have contributed to the government’s debt burden.

Why won’t President Biden take the blame for the US credit downgrade.

Lastly, Fitch Ratings has assigned a Stable Outlook despite the downgrade, reflecting the ongoing resilience and diversification of the United States’ economy. However, this outlook rests on the assumption that the country will implement a credible fiscal consolidation plan over the medium term that allows for a stabilization of its fiscal trajectory and a reversal of its debt burden.

The downgrade by Fitch Ratings of the United States’ Long-Term Foreign-Currency Issuer Default Rating has come as a shock to many. The decision was based on the expected fiscal deterioration over the next three years. The high and growing general government debt burden, and the erosion of governance. These issues are relative to the downgrade from ‘AA’ to ‘AAA’ rated peers over the last two decades. The United States government needs to outline a comprehensive fiscal consolidation plan over the medium term that allows for the stabilization of its fiscal trajectory and a reversal of its debt burden. Future economic shocks and the ongoing Covid-19 pandemic will also need to be taken into consideration when addressing these issues.

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6 Comments

Kurt Jenkins

September 4, 2024 at 9:17 pm

The recent downgrade of the US credit rating by Fitch Ratings underscores significant concerns regarding the nation’s fiscal health and economic stability. This decision reflects challenges such as rising debt levels and political gridlock, which could ultimately impact investor confidence and borrowing costs. As stakeholders assess the implications of this downgrade, it serves as a crucial reminder of the importance of sound fiscal management and the need for strategic economic policies moving forward. The downgrade could potentially reshape perceptions of the US economic landscape, making it essential for policymakers to address these issues proactively.

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Mabel Hughes

September 6, 2024 at 4:55 am

Fitch Ratings’ decision to downgrade the US credit rating underscores growing concerns regarding fiscal stability and economic management. This move may have significant implications for investor confidence and borrowing costs, as it reflects a more cautious outlook on the nation’s financial health. Stakeholders must closely monitor the evolving economic landscape and government responses to address these challenges and restore confidence in the US creditworthiness.

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Suzanne Hughes

September 9, 2024 at 12:54 am

In conclusion, Fitch Ratings’ recent downgrade of the US credit rating marks a significant shift in the perception of the nation’s fiscal health and economic stability. This decision reflects growing concerns over rising national debt, political polarization, and the potential impact on future economic growth. As the implications of this downgrade unfold, it will be crucial for policymakers to address these challenges to restore confidence among investors and maintain the country’s financial standing on the global stage. The downgrade serves as a reminder of the importance of fiscal responsibility and the need for proactive measures to ensure long-term economic resilience.

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Scott Jenkins

September 9, 2024 at 1:07 am

In conclusion, Fitch Ratings’ recent downgrade of the US credit rating signals significant concerns regarding the nation’s fiscal health and economic stability. This decision may lead to increased borrowing costs and heightened scrutiny from investors, emphasizing the need for robust financial management and strategic reforms. As the US navigates these challenges, it is imperative for policymakers to address underlying issues to restore confidence and preserve the nation’s creditworthiness in the global market.

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Emily Hughes

September 9, 2024 at 1:54 am

In conclusion, the recent downgrade of the US credit rating by Fitch Ratings signifies a critical moment for the nation’s financial standing. This decision reflects growing concerns over fiscal sustainability, political polarization, and economic challenges. As investors and policymakers navigate this new reality, it will be essential to address these underlying issues to restore confidence in the US economy and maintain its status as a global financial leader. The downgrade serves as a reminder of the interconnectedness of economic policies and creditworthiness, urging for proactive measures to safeguard the nation’s financial future.

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robin jenkins

September 12, 2024 at 12:55 am

In conclusion, Fitch Ratings’ downgrade of the US credit rating reflects growing concerns about the nation’s fiscal stability and debt management. This decision may have significant implications for both domestic and global markets, as it could lead to increased borrowing costs and impact investor confidence. Stakeholders will need to closely monitor the situation and the government’s response to address these challenges and restore the US’s creditworthiness in the eyes of investors.

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