Ratings agency Fitch made a significant decision on Tuesday by downgrading the US government’s credit rating from AAA to AA+. The agency cited concerns over the expected fiscal deterioration in the next three years and the increasing general government debt burden. As a result of the downgrade, the value of the dollar declined. It’s worth noting that this downgrade followed a debt ceiling agreement between President Biden and the Republican-controlled House, which temporarily lifted the $31.4 trillion debt ceiling after months of political tension.
Fitch expressed its opinion on the deterioration of governance standards, particularly regarding fiscal and debt matters, over the past two decades. This assessment comes despite a bipartisan agreement in June to suspend the debt limit until January 2025. Treasury Secretary Janet Yellen has expressed her disagreement with Fitch’s downgrade, calling it arbitrary and based on outdated data.
Credit ratings are vital for investors to evaluate the risk associated with companies and governments when they seek financing in the debt capital markets. Echoing their earlier statement, Fitch reiterated their view on the decline in governance standards over the past 20 years.
Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services in Atlanta, found the downgrade unexpected and its impact on the market uncertain. The announcement led to a decrease in the value of the dollar against major currencies, although trading for US stock index futures had not yet resumed at the time.
This is not the first time the US has faced a debt ceiling crisis. In 2011, Standard & Poor’s downgraded the US top ‘AAA’ rating by one notch shortly after a debt ceiling agreement due to political polarization and insufficient efforts to address the nation’s fiscal outlook. Currently, S&P’s rating stands at ‘AA-plus’, which is the second-highest rating.
The recent downgrade by Fitch reminds us of the repercussions witnessed in 2011 when US stocks plummeted and the rating cut reverberated across global stock markets already struggling with a financial crisis in the euro zone. Interestingly, US Treasury prices rose during this time as investors sought the security of quality bonds amidst the equity market downturn. Fitch had previously placed its rating of US sovereign debt on watch for a possible downgrade in May, highlighting risks such as political brinkmanship and the mounting debt burden.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
