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Fitch downgrades US credit rating, White House “strongly disagrees”

Blow for the US

The US government’s credit rating has been downgraded by the Fitch Ratings from AAA to AA+, citing a “steady deterioration in standards of governance,” CNN reported on Tuesday. This downgrade comes after the recent debt ceiling drama, where the lawmakers were negotiating up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default.

The January 6 insurrection was also a major contributing factor, CNN reported.

In a meeting with Biden administration officials, representatives from Fitch Ratings repeatedly highlighted the January 6 insurrection as a significant concern as it relates to US governance, a person familiar with the matter told CNN.

Explaining its rationale for the downgrade, Fitch pointed to “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 that has manifested in repeated debt limit standoffs and last-minute resolutions.”

Fitch said the decision wasn’t just prompted by the latest debt ceiling standoff but rather “a steady deterioration in standards of governance over the last 20 years” regarding “fiscal and debt matters”, CNN reported.

This development has drawn sharp reactions from the Biden administration officials.

“I strongly disagree with Fitch Ratings’ decision,” said Treasury Secretary Janet Yellen in a statement on Tuesday, adding, “The change by Fitch Ratings announced today is arbitrary and based on outdated data”.

White House Press Secretary Karine Jean-Pierre said in a statement that “we strongly disagree with this decision,” and cited similar concerns about Fitch’s modeling.

“And it’s clear that extremism by Republican officials—from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy,” CNN quoted Pierre as saying.

Senate Majority Leader Chuck Schumer blamed House Republicans for the downgrade, saying in statement that their “reckless brinksmanship and flirtation with default has negative consequences for the country”.

US debt has long been considered the safest of safe havens, but Tuesday’s rating cut suggests it has lost some of its luster. But this downgrade has potential reverberations on everything from the mortgage rates Americans pay on their homes to contracts carried out all across the world, according to CNN.

The move could lead to investors selling US Treasuries, leading to a spike in yields that serve as references for interest rates on a variety of loans.

The last time the US debt was downgraded by another major credit rating agency, S&P, came in 2011. In both cases, the limit was raised only after protracted negotiations, CNN reported.

Also read: Explainer: What is the fuss about US debt ceiling?