August 02, 2023 (MLN): Fitch downgrading the U.S. government's top credit rating drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago, as Reuters reported.
Fitch had first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to finalize the review in the third quarter of this year.
With the downgrade, it becomes the second major rating agency after Standard & Poor’s to strip the United States of its triple-A rating.
The dollar fell across a range of currencies, stock futures ticked down and Treasury futures rose after the announcement. But several investors and analysts said they expected the impact of the downgrade to be limited.
U.S. Treasury Secretary Janet Yellen disagreed with Fitch's downgrade, in a statement that called it "arbitrary and based on outdated data."
The White House had a similar view, saying it "strongly disagrees with this decision".
"It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world," said White House press secretary Karine Jean-Pierre.
Analysts said the move shows the depth of harm caused to the United States by repeated rounds of contentious debate over the debt ceiling, which pushed the nation to the brink of default in May.
"This basically tells you the U.S. government’s spending is a problem," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA.
Impact
In a previous debt ceiling crisis in 2011, Standard & Poor's cut the top "AAA" rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation's fiscal outlook. Its rating is still "AA-plus" – its second highest.
After that downgrade, U.S. stocks tumbled and the impact of the rating cut was felt across global stock markets, which were at the time already in the throes of the euro zone financial meltdown. Paradoxically, U.S. Treasuries prices rose because of a flight to quality from equities.
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Posted on: 2023-08-02T10:39:13+05:00
