Fitch claims there has been "governance erosion" in how the US government manages its debt, but the Treasury disagrees.
Fitch Ratings, one of the world's "Big Three" credit rating agencies, has removed the United States from its highest status as a long-term lending counterparty.
The country's long-term foreign-currency issuer default rating (IDR) was downgraded to AA+ from AAA on Tuesday, prompting criticism of Fitch from the US Treasury Department and the White House.
**Why downgrade? **
Fitch said the downgrade reflected expectations of a "fiscal deterioration" in the country, an "increasing overall government debt burden" and a "governance erosion" in how debt is managed relative to its AA and AAA rated peers.
First, the government deficit has been rising over time and is expected to reach 6.3% by the end of 2023, compared to 3.7% by the end of 2022. Fitch attributed the expected rise to "weaker government revenues, new spending initiatives and higher spending". interest burden. "
"Fitch forecasts a government deficit of 6.6% of GDP in 2024, widening further to 6.9% of GDP in 2025," the agency added.
The sheer size of the country's debt also dwarfs countries in similar credit rating categories. The U.S. debt-to-GDP ratio is projected to reach 118% by 2025, nearly three times the AAA median of 39.3%.
As debt mounts, so does the country's interest burden, with Fitch predicting interest payments alone will account for 3.6% of GDP by 2033.
So far, negotiations over the past two decades to resolve the U.S. debt problem have been in disarray. Fitch cited the bipartisan agreement reached in June in which Congress agreed to fully suspend the national debt ceiling until January 2025 (after the next federal election).
"Recurring political deadlock over the debt ceiling and last-minute resolutions have undermined confidence in fiscal management," Fitch wrote. "In addition, unlike most of its peers, the government lacks a medium-term fiscal framework and has a complex budget process."
Government Response
U.S. Treasury Secretary Janet Yellen was not pleased with Fitch's downgrade, saying its decision was "arbitrary and based on outdated data." She said she had seen progress in many of the economic indicators used by Fitch, "including those related to governance".
Meanwhile, White House press secretary Karin Jean-Pierre said in a statement on Tuesday that the downgrade "contradicts reality," asserting that the president "led the strongest recovery of any major economy in the world," and Accused the Republican Party of "cheerleading" debt default.
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Fitch Ratings Downgrades U.S. Government Debt Rating to AA+
Fitch claims there has been "governance erosion" in how the US government manages its debt, but the Treasury disagrees.
Fitch Ratings, one of the world's "Big Three" credit rating agencies, has removed the United States from its highest status as a long-term lending counterparty.
The country's long-term foreign-currency issuer default rating (IDR) was downgraded to AA+ from AAA on Tuesday, prompting criticism of Fitch from the US Treasury Department and the White House.
**Why downgrade? **
Fitch said the downgrade reflected expectations of a "fiscal deterioration" in the country, an "increasing overall government debt burden" and a "governance erosion" in how debt is managed relative to its AA and AAA rated peers.
First, the government deficit has been rising over time and is expected to reach 6.3% by the end of 2023, compared to 3.7% by the end of 2022. Fitch attributed the expected rise to "weaker government revenues, new spending initiatives and higher spending". interest burden. "
"Fitch forecasts a government deficit of 6.6% of GDP in 2024, widening further to 6.9% of GDP in 2025," the agency added.
The sheer size of the country's debt also dwarfs countries in similar credit rating categories. The U.S. debt-to-GDP ratio is projected to reach 118% by 2025, nearly three times the AAA median of 39.3%.
As debt mounts, so does the country's interest burden, with Fitch predicting interest payments alone will account for 3.6% of GDP by 2033.
So far, negotiations over the past two decades to resolve the U.S. debt problem have been in disarray. Fitch cited the bipartisan agreement reached in June in which Congress agreed to fully suspend the national debt ceiling until January 2025 (after the next federal election).
"Recurring political deadlock over the debt ceiling and last-minute resolutions have undermined confidence in fiscal management," Fitch wrote. "In addition, unlike most of its peers, the government lacks a medium-term fiscal framework and has a complex budget process."
Government Response
U.S. Treasury Secretary Janet Yellen was not pleased with Fitch's downgrade, saying its decision was "arbitrary and based on outdated data." She said she had seen progress in many of the economic indicators used by Fitch, "including those related to governance".
Meanwhile, White House press secretary Karin Jean-Pierre said in a statement on Tuesday that the downgrade "contradicts reality," asserting that the president "led the strongest recovery of any major economy in the world," and Accused the Republican Party of "cheerleading" debt default.