Fitch Ratings has downgraded the U.S.’s long-term foreign-currency default rating to AA+ from AAA.
The ratings agency said the downgrade, on the U.S.’s primary rating, reflects “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades.”
The ratings agency also cited repeated debt limit standoffs and last-minute resolutions.
Treasury Secretary Janet Yellen issued a statement after the announcement, saying “The change by Fitch Ratings announced today is arbitrary and based on outdated data.”
Yellen added that many of Fitch’s concerns, including those related to governance, “have shown improvement over the course of this Administration, with the passage of bipartisan legislation to address the debt limit, invest in infrastructure, and make other investments in America’s competitiveness.”
Fitch noted that unlike most of its peers, the federal government “lacks a medium-term fiscal framework: and “has a complex budgeting process.” Those factors, along with economic shocks, tax cuts, and new spending initiatives, have contributed to “successive debt increases over the last decade.”
The ratings agency also pointed out that “only limited progress” has been made in tackling challenges related to rising Social Security and Medicare costs because of its aging population.
Yellen’s statement said: “President Biden and I are committed to fiscal sustainability. The most recent debt limit legislation included over $1 trillion in deficit reduction and improved our fiscal trajectory. Looking forward, President Biden has put forward a budget that would reduce the deficit by $2.6 trillion over the next decade through a balanced approach that would support investments for the long-term.”
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