Downgraded U.S. Debt Credit Rating Provides a Wakeup Call

Fitch Ratings has described the key drivers to justify its recent decision to downgrade its U.S. credit rating from AAA to AA+ in the firm’s recent report — “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” which have “eroded confidence in fiscal management.” Although the commentary by Fitch cites “several structural strengths that underpin the nation’s ratings — a large, advanced, well-diversified and high-income economy, supported by a dynamic business environment; and “the world’s preeminent reserve currency giving the government extraordinary financing flexibility,” Fitch projects that “tighter credit conditions, weakening business investment, and a slowdown in consumptions will push the U.S. economy into a mile recession in 4Q23 and 1Q24.” The lowering of its long-term rating of the U.S. by Fitch marks the second time in the nation’s history following a previous downgrade in 2011 when S&P similarly lowered its U.S. credit rating from AAA to AA+.