The administration under President Biden has attributed the recent decline in the U.S.’s credit rating to actions taken during the tenure of former President Donald Trump, as well as the turmoil caused by the events of January 6th.
On Tuesday, Fitch Ratings revealed that it has lowered the U.S.’ long-term foreign-currency issuer default rating from “AAA” to “AA+.” The agency attributed this change to anticipated fiscal challenges and the significant debt load carried by the country.
A representative from the current administration spoke to FOX Business, explaining that the rating model had been at AAA prior to the Trump administration. They further noted that despite efforts to restore the rating since 2020, multiple factors prevented recovery, with Fitch’s shift in thinking playing a role.
The representative also emphasized to FOX Business that Fitch continuously mentioned the January 6th incidents as part of its rationale, viewing the governance instability as a component of the rating downgrade.
In its Tuesday statement, Fitch also cited concerns over the U.S.’s “weakening of governance,” rising budget deficits, and actions taken by the Federal Reserve. The agency even expressed expectations that the U.S. economy might experience a slight recession in the last quarter of the year.
U.S. Treasury Secretary Janet Yellen responded to Fitch’s decision with a statement expressing her disagreement, accusing the agency of relying on stale information and arguing that circumstances have become better under President Biden’s leadership.
Yellen’s statement further read, “The adjustment by Fitch Ratings revealed today appears random and founded on outdated facts.” She proceeded to detail various positive trends and accomplishments under the current administration, such as bipartisan efforts to tackle the debt ceiling, invest in infrastructure, and enhance America’s competitiveness.
Credit ratings are vital tools for investors who wish to gauge the risk associated with lending to governments and businesses in debt capital markets. Generally, a decrease in the rating implies higher borrowing costs for the rated entity.
