Fitch Ratings has downgraded the US government over the past two years, citing “poor governance standards” and rising federal, state, and local debt. On Tuesday, the rating was downgraded from AAA to AA+, the highest expected rating. The new assessment is still risk-based. The assessment shows how the evolution of political polarization and the repeated Washington deadlocks in spending and expenses can be costly to the United States people. Over time, lower FICO scores can cost the U.S. government.
This is only the second time in the country’s history that credit scores have been cut. Rating agency Standard & Poor’s downgraded the US to an expected three A’s in 2011 after a controversy over government debt. A 2012 report by the Federal Bureau of Investigation estimated that bad debt increased the loan amount by $1.3 billion in 2011.
Simultaneously, the colossal size of the U.S. economy and the historic stability of the central government have kept its costs low. International investors often flock to US Treasuries in times of economic crisis, lowering the interest rate paid by the US government.
Fitch warned on May 24 that the government’s triple-A rating could be lifted as Congress renews efforts to increase credit. Almost a week later, an agreement was reached extending the ban and reducing federal revenue by up to $1.5 trillion over the next decade.
Fitch cites political divisions that are less favorable than spending and tax policies as the main reason for its decision. It said the U.S. administration has declined compared with other exceptionally appraised nations, and it noted “repeated debt limit deadlocks and last-minute goals.”
Biden administration authorities unequivocally censured Fitch’s turn. It was described as “arbitrary” and “based on outdated data” by Treasury Secretary Janet Yellen.
Yellen noticed that the U.S. economy has quickly recuperated from the pandemic downturn, with the joblessness rate close to a 50-year low and the economy growing at a strong 2.4% yearly rate in the April-June quarter.
Fitch informed Biden administration officials that Jan. 6, 2021, uprising was a factor in its decision to downsize on the grounds that it showed a shaky government, as per an individual acquainted with the conversations between the organisation and the rating office. According to the person, who requested anonymity in order to disclose private conversations, a report from Fitch was released the previous year indicating that although government stability decreased between the years 2018 and 2021, it has increased since Biden took office.
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