Fitch downgrades US credit rating due to deteriorating US governance and frequent debt ceiling battles.

Fitch downgrades US credit rating due to deteriorating US governance and frequent debt ceiling battles.

Fitch Downgrades US Credit Rating: A Blow to Biden’s Economic Stewardship

In a significant blow to President Joe Biden’s economic stewardship, Fitch, one of the major credit rating agencies, announced on Tuesday that it has downgraded the long-term rating of the United States. This downgrade comes as a result of concerns about the steady deterioration in the country’s governance standards, particularly when it comes to fiscal and debt matters.

Fitch’s decision to lower the credit rating reflects a lack of confidence in Congress’ ability to effectively manage the nation’s finances, especially in relation to raising the debt ceiling and avoiding default. Although a bipartisan compromise was reached in June to suspend the debt limit until 2025, Fitch remains unconvinced that further calamities are not on the horizon.

“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, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the agency stated in its rating change announcement. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”

Furthermore, Fitch cited rising government deficits and ongoing concerns about the long-term sustainability of programs such as Social Security and Medicare as additional factors contributing to the downgrade from the top-tier AAA rating to AA+.

This move by Fitch mirrors a similar downgrade made by S&P in 2011, following a different debt ceiling battle. While the financial impact of Fitch’s decision remains to be seen, the downgrade sends a clear message about the need for improvements in governance and fiscal management.

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Unsurprisingly, Treasury Secretary Janet Yellen strongly disagreed with Fitch’s decision. In a statement, she criticized the rating agency for using outdated data and called the downgrade arbitrary, pointing to indicators such as near-record low unemployment and strong GDP as evidence of the country’s economic strength.

The downgrade comes in the wake of yet another prolonged battle over the debt ceiling. However, a potentially disastrous default was narrowly avoided through a bipartisan deal. In early June, Democrats and Republicans in Congress passed legislation to suspend the debt limit until 2025, with Democrats agreeing to reduce government spending.

The debt ceiling has increasingly become a contentious issue in the Biden era, with Republicans consistently seeking to use the threat of default to advance their own spending priorities. Over the past two decades, both Republicans and Democrats have employed brinkmanship tactics to leverage the threat of default for their respective agendas, although the country has not yet faced a catastrophic default.

Despite the recent bipartisan deal that guarantees some relief from the debt ceiling until the next presidential election, Fitch’s assessment led to finger-pointing among lawmakers. Democrats on the House Ways and Means Committee placed the blame on Republicans, stating that the downgrade was the result of the GOP’s manufactured default crisis.

“They’ve repeatedly put the full faith and credit of our nation on the line, and now, they are responsible for the second downgrade in our credit rating,” they tweeted.

In conclusion, Fitch’s downgrade of the US credit rating serves as a wake-up call for Congress to address the governance flaws that have contributed to a steady deterioration in fiscal and debt management. The long-term health of vital programs and the stability of the country’s economy depend on a more responsible and effective approach to managing the nation’s finances.

• Congress
• Economy
• White House