The Fitch Ratings logo, displayed at their offices in London’s Canary Wharf financial district, holds significant weight in determining the United States’ creditworthiness. According to Fitch, achieving a top rating will require a substantial improvement in governance rather than relying on factors such as job market growth, a strong dollar, or a resilient economy. As evidence of the nation’s declining metrics, Fitch recently downgraded the US long-term foreign currency issuer default rating from AAA to AA+. This decision, announced on Tuesday, led to a slump in global stock markets the following day. In May, Fitch had already placed the United States’ rating on negative watch due to concerns surrounding the debt ceiling issue. Richard Francis, Fitch’s co-head of the Americas sovereign ratings, pointed out the steady deterioration in key metrics over the years, particularly the rise in general government debt from less than 60% in 2007 to 113% presently. Furthermore, Fitch predicts an increase in fiscal deficits and debt in the next three years. The rating agency also highlighted the frequent political conflicts surrounding the debt ceiling, including the insurrection on January 6, 2021. These ongoing disputes have severely hindered the government’s ability to develop effective solutions for growing fiscal challenges, particularly related to entitlement programs like Social Security and Medicare.
To regain the top rating, Fitch emphasizes the importance of implementing a long-term fiscal solution that addresses entitlement programs while considering both revenue and spending. Additionally, the agency looks for a reduction in the deficit and suggests addressing the debt ceiling by either suspending or eliminating it. Francis argues that given the nation’s high debt levels, increasing deficits, and governance deterioration, the AAA rating is no longer warranted.
Despite criticism and dismissiveness concerning the downgrade from influential economists and even the White House, Fitch maintains that the resilience of the U.S. economy alone cannot overcome governance issues. Francis asserts that a more comprehensive evaluation of the nation’s creditworthiness and future expectations is necessary, rather than merely focusing on economic performance and recession avoidance.
Overall, Fitch’s downgrade serves as a reminder that the United States must address its governance challenges and display a commitment to resolving fiscal issues if it wishes to regain its top rating.
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