The long-term credit rating of the United States was downgraded on Tuesday by the Fitch Ratings agency, which said that the nation’s high and growing debt burden and penchant for brinkmanship over the debt limit had eroded confidence in its fiscal management.
Fitch lowered the U.S. long-term rating to AA+ from its top mark of AAA. The downgrade came two months after the United States narrowly avoided the first debt default in its history. Lawmakers spent weeks negotiating over whether the United States should be allowed to keep borrowing money to pay its bills, a standoff that threatened to tip the United States into default. In June, Congress reached a last-minute agreement to suspend the nation’s borrowing cap.
Despite that deal, the federal government now faces the prospect of a shutdown this fall as lawmakers struggle to cobble together an agreement over the budget.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said in a statement. “In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”
Fitch pointed to the growing levels of U.S. debt in recent years as lawmakers passed new tax cuts and spending initiatives. The firm noted that the U.S. had made only “limited progress” in tackling challenges related to the rising costs of programs such as Social Security and Medicare, whose costs are expected to soar as the U.S. population ages.
Fitch is one of the three major credit ratings agencies, along with Moody’s and S&P Global Ratings. In 2011, S&P downgraded the U.S. credit rating amid a debt-limit standoff.
The downgrade is not expected to have an impact on demand for U.S. debt, but it is a blemish on the nation’s record of fiscal management.
The Biden administration offered a forceful rebuttal of the downgrade on Tuesday, criticizing its methodology and arguing that the decision did not reflect the health of the U.S. economy.
“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Treasury Secretary Janet L. Yellen said in a statement.
Ms. Yellen also described the change as “arbitrary” and noted that Fitch’s ratings model showed U.S. governance deteriorating from 2018 to 2020 but that it did not make changes to the U.S. rating until now.
The debt limit agreement reached in June cuts federal spending by $1.5 trillion over a decade, by freezing some funding that was projected to increase next year and capping spending to 1 percent growth in 2025.
However, lawmakers and the White House avoided making big cuts to politically sensitive initiatives, and even with the spending curbs they did impose, the national debt is still poised to top $50 trillion by the end of the decade.