Fitch Ratings has downgraded the US debt rating from the highest level of AAA to AA+.
The agency stated that its decision is due to a steady deterioration in management standards, which has signs of a systematic phenomenon and features of a long-term existence trend.
The downgrade is a kind of the result of the influence of several factors and not the consequence of only one reason. In this case, the agency’s position is partly explained by the fact that American lawmakers this year, until the last permissible time limit, agreed on the issue of raising the debt ceiling. Also, one of the factors influencing the downgrade was the events of January 6, 2021, related to the storming of the Capitol by supporters of the 45th US President Donald Trump.
The media, citing insiders, report that Fitch representatives, during a meeting with officials of the administration of the current President of the United States Joe Biden, repeatedly said that what happened on January 6 was not an autonomous event on a historical scale, which entirely remained in the past and existed in the context of the completed political period, but is a manifestation of a characteristic feature of the modern system state. The problems and circumstances of two years ago, due to which the storming of the Capitol became possible as a process with a high level of public involvement, remain in the political sphere and continue to be an active factor in influencing what is happening, albeit in a less radical form than in 2021. In this case, Fitch representatives primarily mean management in the United States as a process requiring adjustments.
At the same time, the credit agency in its full report on the downgrade did not indicate the events of January 6 as an influence factor. But the statements of insiders are not a fantastic story from a parallel reality, because these assertions reflect real problems that two years ago did not go into the space of non-existence and did not become a historical fact that does not determine reality in its current socio-political and economic configuration.
For quite a long period, the debt of the United States has been perceived by many as a kind of quiet and reliable place in the space of an economic system subject to various influences, especially in an era of geopolitical instability. The downgrade indicates that what was a refuge is no longer one. In the future, the deterioration of the indicator may have global consequences that will affect both mortgage rates relevant to Americans in the context of the financial aspect of real estate ownership, and international-level contracts.
The media also report that the downgrade may encourage investors to start selling treasury bonds. If this scenario is implemented, there will be a sharp increase in profitability, which is a benchmark for interest rates on various loans.
Fitch also noted in its report that the financial system is expected to deteriorate over the next three years. The agency also identifies the high level of the government’s debt burden as the reason for the negative forecast, which continues to show growth dynamics, and the erosion of governance in general and compared to similar AA and AAA ratings, which were manifested by disputes over debt limits and last-minute decisions.
Representatives of the US presidential administration announced their disagreement with the downgrade. United States Treasury Secretary Janet Yellen says that the decision of the credit agency is arbitrary and based on outdated data.
White House Press Secretary Karin Jean-Pierre also expressed categorical disagreement with the downgrade. As part of this statement, she noted that the extremism of Republican officials, which, according to her, manifests itself in many aspects of their activities, including support for default and undermining governance, is a constant threat to the American economy.
Senate Majority Leader Chuck Schumer also holds the view that the deterioration in the rating is the result of the actions of representatives of the Republican Party. According to him, reckless balancing on the brink of war and flirting with default negatively affects the state of affairs in the country.
The last time the US debt rating was downgraded by another S&P rating agency was in 2011. Then the increase in the limit also occurred after a long negotiation process. The decision of 12 years ago provoked a sharp drop in the stock market and a rise in bond yields.
Until 2011, US debt had an ideal credit rating. Moody’s Investors Service first assigned the United States an AAA rating in 1917. The new rating from Fitch puts the US on par with Austria and Finland but below Switzerland and Germany.
S&P has maintained the US rating at AA+ after being downgraded in 2011. Moody’s retained its AAA rating.
A representative of the administration of the President of the United States, referred to by the media, without specifying his name and position, said that Fitch is the only rating agency that made a negative forecast, but at the same time stated that he did not know whether the decision to lower the forecast would affect the analytics of other similar organizations.
Futures for the Dow Jones Industrial Average, S&P 500, and Nasdaq-100 declined by less than 1% after the announcement of the Fitch rating.
Former US Treasury Secretary Larry Summers said that the downgrade of the debt rating is strange and inept, noting that currently, the economic system of the United States is showing more strength than expected.
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