ALBAWABA – United States (US) officials have mounted a storm of outrage Wednesday, over the Fitch Ratings downgrade of US credit rating on Tuesday, which US officials have labelled as “arbitrary” and “outdated”, news agencies reported.
Fitch Ratings downgraded the US’ triple-A rating to AA+ on Tuesday, citing 20 years of “steady deterioration in standards of governance”, Reuters reported.
Notably, this is the second downgrade of US credit ratings in more than a decade. S&P Global Ratings cut the US credit grade to AA+ as well back in 2011.
Fitch rating cited greatening fiscal deficits and an “erosion of governance”, leading to repeated debt limit clashes over the past two decades, according to Bloomberg.
Economists had previously warned of the implications of the US debt ceiling crisis, earlier this year, which almost caused the US to default on bills and payments for the first time in history.
Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while mid-term challenges related to rising entitlement costs remain largely unaddressed.
“The rating downgrade of the United States reflects the expected fiscal deterioration 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 over the last two decades,” Fitch Ratings said in a statement.
Officials slam Fitch in storm of US outrage over new AA+ rating
The outrage over Fitch Ratings downgrade of US credit rating began Wednesday, with US Treasury Secretary Janet Yellen quickly responded to the downgrade, calling it “arbitrary” and “outdated.”
“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s preeminent safe and liquid asset and that the American economy is fundamentally strong,” Yellen said in the statement.
Tuesday’s statement also attributed the downgrade to the country’s rapidly swelling debt burden, which it forecasts to reach 118 percent of gross domestic product by 2025. This is more than two-and-a-half times higher than the ‘AAA’ median of 39.3 percent, the New York-based news agency reported.
The rating company projects the debt-to-GDP ratio to rise even further in the longer-term, increasing America’s vulnerability to future economic shocks, the report said.
Treasuries respond amid Outrage over Fitch Ratings downgrade of US credit rating
Meanwhile, treasuries (bonds) ticked higher in early Asia trading after the Fitch announcement amid modest demand for haven assets, according to Bloomberg.
Yields on two-year Treasuries fell one basis point to 4.89 percent in Asia trading, while those on 10-year US bonds edged one basis point higher to around 4.03 percent, Bloomberg reported. Meanwhile, the dollar dipped against the euro and yen.
S&P’s downgrade of the US credit rating in 2011 triggered a selloff in risk assets like equities around the world, but ironically boosted Treasuries as investors sought out havens.
On Monday, the Treasury increased its net borrowing estimate for the July-through-September quarter to $1 trillion. The estimate is more than some analysts expected and well above the $733 billion it had predicted in early May. The Treasury will preview its quarterly financing plans on Wednesday, as reported by Bloomberg.
