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White House Counters Credit Downgrade, Protecting Biden’s Economic Message

When Fitch Ratings agency recently downgraded the long-term credit rating of the United States from AAA to AA+, the Biden administration swiftly responded with a mobilized effort to defend the improving economic outlook.

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Administration officials had been lobbying against the downgrade, but when it went through, they hit back with economic heavyweights both inside and outside the administration challenging the timing and substance of the announcement.

The pushback was driven by the administration’s desire to safeguard President Biden’s economic record, especially in light of positive indicators for the American economy.

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A key aspect highlighted in the defense was the administration’s achievements in fiscal policy and economic growth, exemplified by a bipartisan deal to raise the debt limit and modestly reduce federal spending.

Fitch Ratings cited several concerns for the downgrade, including the expected fiscal deterioration over the next three years, a growing government debt burden, and erosion of governance over the past two decades.

They particularly pointed out the high-stakes showdowns over raising the nation’s borrowing limit, which undermined confidence in fiscal management.

The Biden administration, however, questioned Fitch’s timing and rationale, expressing strong disagreement with the ratings change.

They emphasized that the agency overlooked the accomplishments under President Biden and disregarded positive economic data.

Officials reaffirmed the administration’s commitment to implementing further spending cuts and tax increases on corporations and the wealthy to address budget deficits.

Despite the downgrade, investors largely remained unfazed, with Goldman Sachs researchers downplaying its direct impact on financial markets.

Nevertheless, Republicans seized the opportunity to criticize Mr. Biden, warning of rapidly deteriorating financial health and unsustainable debt trajectories.

The credit downgrade marked the second in American history and was directly linked to debt limit disputes.

Fiscal hawks have been cautioning against the nation’s growing debt for years, particularly exacerbated by trillions in borrowing during the Covid-19 pandemic while facing rising federal borrowing costs due to the Federal Reserve’s interest rate hikes..

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