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Fitch Ratings Downgrades U.S. Debt Rating, Biden Officials Disagree

Fitch Ratings, one of the major credit rating agencies, downgraded the United States’ long-term foreign-currency issuer default rating from AAA to AA+. The downgrade decision was based on the expected fiscal deterioration over the next three years, the growing government debt burden, and a decline in governance standards relative to higher-rated peers over the past two decades. Fitch also mentioned repeated debt limit standoffs and last-minute resolutions, which have eroded confidence in fiscal management.

The U.S. government’s deficit is expected to rise to 6.3% of GDP in 2023, reflecting weaker federal revenues, new spending initiatives, and a higher interest burden.

Credit: DepositPhotos

The rating agency had placed the U.S. credit rating on negative watch earlier due to the debt ceiling fight in Washington. However, it has now removed the negative watch and assigned a “stable outlook” to the U.S. rating.

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In response to the downgrade, officials from the Biden administration criticized Fitch’s decision, stating that the governance issues highlighted occurred during the previous administration under President Donald Trump. They argued that the current administration has made progress in various indicators that Fitch relies on for its decision. Treasury Secretary Janet Yellen called the change arbitrary and based on outdated data, citing improvements made during the current administration.

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The White House also disagreed strongly with the decision, stating that Fitch’s ratings model declined during the Trump presidency and improved under President Biden. They consider the downgrade as a result of the previous administration’s actions and political standoffs.

Despite the downgrade, the Biden administration remains optimistic about the U.S. economy’s recovery under President Biden’s leadership, citing bipartisan legislation addressing the debt limit and investments in infrastructure and competitiveness.

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