On 1 August, Fitch Ratings, one of the three main independent debt ratings agencies, downgraded US debt from an AAA rating to AA+ with a stable outlook.
This action reflects the expected fiscal deterioration of the US over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers. None of these elements appear likely to change in the short term. Fitch Ratings (‘Fitch’) now joins S&P Global Ratings by assigning the US a rating of AA+; Moody’s still maintains the US at its highest investment grade level of AAA, with a risk of downgrading its outlook to negative.
What are the main reasons behind this downgrade?
”Declining governance standards, relative to peers, rising government debt and deficit contributed to this ratings downgrade.”
Erosion of governance - Fitch cited the US’ complex budget and debt limit process, which has become increasingly mired in US political partisanship and last-minute resolutions, eroding confidence in fiscal management. This stands in stark contrast with other AAA- and AA-rated issuers, which tend to have a stronger fiscal framework. The agency also cited the absence of a firm plan to keep the Social Security and Medicare programs solvent.
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