Fitch Downgrades US Credit Rating Over Debt and Governance Concerns
The US’s credit rating has been downgraded by Fitch, one of the major credit rating agencies, due to concerns over the country’s debt and governance. Fitch has lowered the rating from AAA to AA+ – the second-highest rating. This downgrade comes after months of debate and political standoffs over raising the debt limit, which brought the country to the brink of default.
Lower credit ratings can have significant consequences for the US government, as it can increase the cost of borrowing and add to taxpayer bills. The decision by Fitch has been criticized by US officials, including Treasury Secretary Janet Yellen and White House press secretary Karine Jean-Pierre. Yellen called the downgrade “arbitrary” and “based on outdated data,” while Jean-Pierre stated that it defies reality to downgrade the United States at a time when President Biden has delivered the strongest recovery of any major economy in the world.
In June, President Biden signed a deal to increase the debt ceiling, allowing the country to continue making debt repayments. The bill received bipartisan support after both Republicans and Democrats made concessions on spending. However, Fitch cited a “steady deterioration in standards of governance” and “last-minute resolutions” as reasons for the downgrade.
US History of Debt Ceiling Debates
This is not the first time the US has come close to a potential financially catastrophic default. In 2011, President Obama faced a similar situation when he battled with Republicans to raise the $14.3 trillion debt ceiling. The debate was intense, and the resolution was reached at the last minute.
During that time, the US faced the risk of defaulting on its debt obligations, which would have had severe consequences for the global economy. The debt ceiling is the maximum amount of debt that the US government can legally borrow to fund its operations. Raising the debt ceiling allows the government to continue making debt repayments and avoid default.
Fitch’s Decision and Previous Downgrades
Fitch’s decision to downgrade the US credit rating follows a similar move by Standard & Poor’s in 2011. Standard & Poor’s lowered the US rating from AAA to AA+ after the previous debt limit fight. Moody’s, another major credit rating agency, still maintains the highest rating of AAA for the US.
The US Government Accountability Office estimated in a 2012 report that the 2011 standoff over the debt ceiling raised state borrowing costs by $1.3 billion that year. The potential consequences of a default are significant, not only for the US but also for the global economy.
Despite the downgrade, the US remains a major player in the global economy, and its recovery under President Biden’s leadership has been strong. However, the concerns raised by Fitch regarding debt and governance highlight the need for continued attention to these issues to maintain the country’s financial stability.
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