Aug. 01, 2023 at 11:04 pm

Fitch downgrades U.S. credit rating following spring debt standoff

August 1, 2023no commentNo tags

Citing “repeated debt limit political standoffs” and mounting U.S. red ink, Fitch Ratings said Tuesday that it has downgraded the nation’s credit rating to AA+ from AAA.

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said in a news release.

In early June, Congress passed legislation to raise the nation’s debt ceiling while cutting spending over the next two years after a prolonged standoff between the White House and Republicans. Failure to lift the nation’s borrowing authority threatened to cause it to default on its debt and spark a deep recession

Failure to lift the nation’s borrowing authority threatened to plunge the nation into a deep recession.

But Fitch said “there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding” the last-minute agreement to suspend the debt limit until June 2025.

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Fitch also pointed to steady increases in the nation’s debt over the past decade that it attributed to economic shocks, tax cuts, new spending initiatives and the government’s lack of “a medium term fiscal framework.”

The rating agency said there has been just “limited progress” in tackling the challenges of rising Social Security and Medicare costs, which threaten to bankrupt the two programs by 2035.

Fitch said it expects the nation’s deficit to rise from 3.7% of gross domestic product in 2022 to 6.3% this year and 6.9% in 2025. The recent bipartisan deal to raise the debt limit will save just $1.5 trillion by 2033, which Fitch called “only a modest improvement.

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Fitch downgrades U.S. credit rating following spring debt standoff

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