Yellen dismisses Fitch downgrade as unjustified despite strong US economy.

By David Lawder

MCLEAN, Virginia ‌(Reuters) – ​U.S. Treasury ⁤Secretary Janet Yellen on Wednesday voiced more complaints about Fitch Ratings’⁣ downgrade of the main U.S. credit rating, calling it “entirely unwarranted” because it ignored improvements⁣ in governance metrics during the Biden administration and the country’s economic strength.

Speaking at an Internal Revenue Service contractor office near Washington, Yellen said the rating agency’s announcement on Tuesday failed​ to​ take into account a resilient ⁤U.S. economy, with low unemployment, falling inflation, continued growth and strong innovation.

“Fitch’s decision is puzzling in light of​ the economic strength we see in the United States,” Yellen said.‌ “I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.”

She⁣ said Fitch’s ⁣“flawed assessment” was based on outdated data and failed to reflect improvements in U.S. governance indicators over the past two and a half years‌ of President Joe Biden’s administration.

“At the end ⁢of the day, Fitch’s decision does not change what all of us already know: that Treasury securities remain the world’s ‍pre-eminent safe and liquid asset, ⁤and that the American economy is fundamentally strong,” Yellen added.

Fitch had cited a deterioration in U.S. governance that started during the prior Trump administration in making its‍ decision, according to Biden‍ administration officials.

A July 2022 Fitch report revising the U.S. credit outlook to “stable” from “negative” said former President Donald Trump’s failure to​ concede the 2020 ​election had “no recent parallel in other very highly rated sovereigns,” while noting improved debt expectations. It showed ⁤a⁤ slight improvement in the ratings model score in 2022 during ⁢Biden’s term.

White House Council⁣ of Economic Advisers Chair Jared Bernstein joined the chorus of irate Biden administration officials, calling the‌ move “bizarre” and “arbitrary.”

“I do think the timing ⁤is just very strange … Fitch seems to be punishing the cleanup crew when the guy who wrecked the room is​ long gone,” Bernstein told CNBC,⁣ referring to Trump.

He added that‍ the‍ Biden administration’s ​job was “to make sure that we have a sound, growing macro economy that’s reaching American⁢ households that’s at the core of Bidenomics.”

Richard Francis,‌ a senior director at Fitch, told Reuters on Wednesday that ‍the U.S. governance deterioration‌ was partly reflected in the Jan.⁤ 6, 2021, insurrection at the U.S. Capitol as Trump ⁢sought to overturn the 2020 election results.

But Francis said the deterioration also was reflected in this year’s debt ceiling ⁤fight, and the increasing polarization of both major political parties, making compromise harder to ​achieve.

FISCAL RESPONSIBILITY

In its decision⁤ to cut the U.S. rating by one notch to AA+ from AAA, Fitch also cited a​ fiscal ⁤deterioration over the next three years that will increase deficits and repeated down-to-the wire debt ceiling negotiations that threaten the U.S. government’s ability to pay its bills.

Yellen said that fiscal responsibility was a priority ‌for her and Biden, and the June debt limit‍ deal he⁤ reached ⁣with Republicans included more than $1 trillion in deficit reduction over 10‌ years.

Biden’s proposed 2024 budget, which ‍includes substantial tax hikes on wealthy individuals and corporations, ‍would also⁣ reduce deficits by $2.6 trillion over the next 10 years.

Yellen said investments to modernize the IRS and improve tax ‌enforcement, funded by $60 billion in new resources provided by last year’s‌ Inflation ‍Reduction Act, would cut deficits by “hundreds of billions of dollars” over a decade.

She visited the office‍ of 22nd Century Technologies in McLean, ​Virginia, to highlight a pledge to allow taxpayers to submit all documents and correspondence digitally during the 2024 ⁢tax season, which would eliminate the manual processing of up to 125 million documents annually.

The company has a ​contract to‍ develop scanning technology to‍ convert paper ⁢documents so that they can be digitally processed.

(Reporting by David Lawder ‌in ⁣McLean, VirginiaEditing by‍ Heather Timmons, Paul Simao and Matthew Lewis)

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