The rating agency Fitch has withdrawn the coveted top rating for creditworthiness from the USA. The rating has been lowered by one step from AAA to AA, as Fitch announced. The agency is moving with its competitor S
Nevertheless, the air for the US on the debt market could be getting a little thinner. Because cautious investors like to avoid paper that does not have the best rating.
High US debt
After grading by S
Fitch referred, among other things, to the high level of debt in the USA and the tough struggles over the budget. This spring, the week-long tussle over raising the debt ceiling was particularly threatening. Only after weeks of nail-biting did President Joe Biden’s Democrats and the Republicans reach a compromise. Without the agreement, the US government would have run out of money. A default could have triggered a global financial crisis and an economic downturn.
US Treasury Secretary criticizes the downgrade
But Fitch also pointed to tax cuts and high-spending initiatives that would have led to even higher government debt. Fitch had already announced a rating downgrade in May. The USA does not have to expect further adversity for the time being: Fitch has set the outlook to “stable”.
In order to regain its top credit rating, the United States would have to get its national debt under control, Fitch manager Richard Francis said on CNBC. The deficit as a percentage of gross domestic product has long been higher in the US than in any country with an AAA rating – and also higher than in those that get an AA rating. A long-term solution must be found to finance the health programs, said Francis. Further drama about the debt ceiling wouldn’t help either: the idea that the US could suddenly stop paying its bills doesn’t fit the AAA rating.
US Treasury Secretary Janet Yellen said the downgrade was “arbitrary” and based on outdated data. The White House also pointed out that the US economy had recovered particularly quickly from the corona pandemic. That is why it contradicts reality to lower the rating now of all times. At the same time, spokeswoman Karine Jean-Pierre described the “extremism” of some Republicans as “an ongoing threat to our economy.”
restrained reactions
The effects of the downgrade on the financial markets were initially limited: the dollar came under slight pressure against other currencies. US government bonds hardly reacted. On the European stock exchanges, investors took recent gains with them. “It’s just not the first time,” LBBW chief economist Moritz Kraemer classified the restrained reactions.
The economic consequences were evaluated by Kraemer, who used to work for S
The economist sees the effects more in politics. “The downgrade is likely to be exploited, especially by Republicans.” The next US elections will not take place until autumn 2024. On the Republican side, however, the presidential candidates are warming up.
