Fitch cuts US credit rating from AAA to AA+. The wrath of Yellen and the White House

Fitch snatches the ‘triple A’ from the United States. The agency cuts the US rating to ‘AA+’ from ‘AAA’, with a stable outlook. The decision brings to mind the downgrade shock of S&P in 2011 in the midst of the tug-of-war over the increase in the debt ceiling. With Fitch’s cut, Moody’s is the only agency currently still awarding triple-A ratings to the United States. Janet Yellen criticizes Fitch’s decision, calling it “arbitrary” and “outdated”, as it was based on outdated information. Even the White House “deeply disagrees with this decision,” spokeswoman Karine Jean-Pierre said, noting that the downgrade “defies reality at a time when President Biden” has pushed the fastest recovery among major economies. “It is clear that Republican extremism is a continuing threat to our economy,” the White House adds. “The downgrade reflects the expected fiscal deterioration over the next three years,” says Fitch, noting how the “repeated” debt ceiling clashes and the “last-minute solutions” reached “have eroded” confidence over the years in budget management. Furthermore, the government lacks a medium-term fiscal strategy, adds Fitch, forecasting an American recession in the fourth quarter of 2023 and in the first quarter of 2024. GDP – Fitch estimates – will grow by 1.2% this year, a marked slowdown compared to +2.1% in 2022, to then stop at +0.5% in 2024. The agency expects an interest rate hike by the Fed in September. The agency expects the US to have debt at 112.9% of GDP in 2023, above pre-pandemic levels and the average of 39.3% for countries with an ‘AAA’ rating. “In the next decade, high interest rates and the increase in debt will weigh”, and add to this the expected increase in spending following the aging of the population and in the absence of a reform.