Stocks plummet after Fitch lowers U.S. credit rating.
OAN’s Shawntel Smith-Hill
4:52 PM – Wednesday, August 2, 2023
Fitch reduced the United States government’s credit rating from AAA to AA+ due to fiscal worries, worsening U.S. governance, and political polarization reflected partly by the U.S. Capitol breach.
Fitch cited “a steady deterioration in standards of governance” as a major reason behind its decision on Tuesday evening.
The credit rating drop comes only two months after the U.S. government struggled to resolve the debt-ceiling crisis, which Fitch says threatens the government’s ability to pay its bills.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters,” the rating agency said Tuesday. Fitch said the U.S. appeared to suffer from an “erosion of governance,” pointing to the Washington brinkmanship over the debt ceiling as an example.
“You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties … the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically,” Richard Francis, a senior director at Fitch Ratings, told news outlets, adding “we don’t fault one party or the other for the fiscal situation.”
Despite the drop in its credit rating, the U.S. still holds an AA+, which is among the highest possible ratings.
“I strongly disagree with Fitch Ratings’ decision,” Treasury Secretary Janet Yellen said in a statement on Tuesday, calling the change “arbitrary and based on outdated data.”
Fitch, being among the three major credit rating agencies, is not the first to strip the U.S. of a triple-A credit rating.
Back in 2011, rating agency Standard and Poor’s lowered its rating from AAA to AA+, a change made shortly after Congress managed to resolve a debt ceiling standoff, resulting in an interest rate spike and a stock market drop.
“And I think, obviously, the debt ceiling debate itself highlights that brinkmanship and polarization that we’ve seen, and it’s happening every two years now since 2011, more or less,” said Francis.
President Joe Biden signed a bipartisan bill on June 3rd to lift the federal debt ceiling in order to avoid a default that economists warned would have had devastating consequences for the U.S. and global economy.
The downgrade has raised concerns for some over U.S. fiscal management and has left other economists wondering if the U.S. might eventually end up missing a payment on its over $31 trillion debt.
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