Former Treasury Secretary Larry Summers criticized Fitch’s recent decision to downgrade the United States’ sovereign credit rating as “bizarre and inept.” Summers took to Twitter to express his disbelief at Fitch’s move, especially considering the positive state of the economy. Fitch cited the nation’s growing debt burden and political dysfunction as reasons for the downgrade, but Summers dismissed the idea that it would lead to a default on US Treasury securities. He also disagreed with Fitch’s projection of a mild recession in the near future, as recent data suggests that the economy is stronger than expected. Federal Reserve Chair Jerome Powell shares this sentiment, noting that the US economy is resilient and no longer projected to experience a recession.
Summers is not alone in his criticism of Fitch’s decision. Mohamed El-Erian, chief economic adviser to Allianz SE, called it a “strange move.” Other economists, such as Paul Krugman, have also expressed confusion and disagreement with Fitch’s downgrade. They argue that rating agencies have a poor track record when it comes to sovereign debt and that Fitch’s announcement will likely have limited impact on the economy and markets.
It is worth noting that Moody’s Investor Services is the only major credit ratings agency that has kept the US credit rating at AAA, while Fitch downgraded it to AA+. Jason Furman, a professor at Harvard University and former top economic advisor to President Barack Obama, criticized Fitch’s decision as “completely absurd.” He emphasized that the US is still well within the AAA zone and that small changes in ratings should not matter much.
Fitch justified its downgrade by predicting a deterioration in America’s finances over the next few years and the possibility of a mild recession. The agency pointed to the recent battle over the nation’s debt limit as a contributing factor. However, Treasury Secretary Janet Yellen countered Fitch’s decision by asserting that US Treasury securities remain a safe and liquid asset and that the American economy is fundamentally strong.
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