Fitch downgrades US credit rating citing 'steady deterioration' of US governance amid frequent debt ceiling battles

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August 1, 2023

Fitch Ratings downgraded the U.S.'s credit rating to AA+ from AAA.

Fitch downgraded the US's credit rating on Tuesday, citing "steady deterioration in standards of governance."
The downgrade comes two months after the latest debt ceiling battle and brinkmanship.
Even so, Republicans and Democrats reached a deal to suspend the debt limit until 2025.

Fitch, one of the major credit rating agencies, on Tuesday announced that it has downgraded the US' long-term rating, dealing a potential blow to President Joe Biden's economic stewardship.

The agency was unsparing in its assessment that Congress is functionally a mess, especially when it comes to raising the debt ceiling to avoid a default. Lawmakers and the White House brokered a bipartisan compromise in June that narrowly avoided default, but the deal was not enough to convince the agency that further calamities are not in store.

"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 said in a statement announcing its rating change. "The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."

Fitch also cited rising government deficits and ongoing concerns about the long-term health of programs like Social Security and Medicare as factors in the downgrade from the top-tier AAA rating to AA+.

Fitch's move echoes what S&P did in 2011 when that major rating agency downgraded US credit in the wake of a different debt ceiling fight. It remains to be seen if Fitch's decision will carry the same financial effects that S&P's move did.

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Treasury Secretary Janet Yellen said she strongly disagreed with Fitch's decision.

"The change by Fitch Ratings announced today is arbitrary and based on outdated data," she said in a statement, pointing to indicators like near-record low unemployment and strong GDP as signals of the strength of the country's economy.

The downgrade comes after yet another prolonged battle over the debt ceiling, although that potentially disastrous default was narrowly avoided through a bipartisan deal. Democrats and Republicans passed bipartisan legislation in early June to suspend the debt limit through 2025, with Democrats acquiescing, in part, to paring down government spending.

If it seems like the debt ceiling has become more omnipresent in the Biden era, it's due in part to Republicans consistently attempting to leverage the threat of a default to push their own spending priorities. The GOP has been increasingly deploying brinkmanship over the past 20 or so years — and Democrats have also leveraged the threat of a default to increase their spending priorities — although the country has yet to actually plunge into disastrous default.

However, Fitch's assessment comes after the lastest deal — which guarantees some debt ceiling relief through the next presidential election — was brokered.

Lawmakers are already pointing fingers over the downgrade. Democrats on the House Ways and Means Committee tweeted that Fitch's downgrade "is the result of Republicans' 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 wrote.