No more top rating
Rating agency Fitch downgrades USA
08/02/2023 02:24 am
Investors actually view US Treasuries as safe havens. But due to the week-long dispute over the debt ceiling, the rating agency Fitch is now withdrawing its top rating from the USA. Finance Minister Yellen speaks of arbitrariness.
The rating agency Fitch has withdrawn the coveted top credit rating from the USA. The rating was lowered by one step from AAA to AA+, as Fitch announced. Fitch is catching up with its competitor S&P, which had already lowered the US rating to AA+ in 2011. The third leading rating agency, Moody’s, remains at the highest level.
Nevertheless, the air for the American government on the debt market could now be getting a little thinner. Because conservative investors like to avoid paper that doesn’t have the best rating. After the downgrade by S&P, however, the USA was able to continue to borrow money on favorable terms on the capital market, as it plays an exceptional role as the world’s largest economy.
The tremendous economic power and the role of the dollar as the world’s leading currency mean that US Treasury bonds are considered one of the few safe havens for investors. The importance of the Americans is also supported by the US Federal Reserve because it has sovereignty over the currency.
Controversy over debt limit
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 US 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.
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 reckon with further adversity for the time being: Fitch has set the outlook to “Stable”.
US Treasury Secretary Janet Yellen said the downgrade was “arbitrary” and based on outdated data.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.”