Fitch Ratings has downgraded the US debt rating from AAA to AA+ citing a'steady deterioration of standards of governance'.
This downgrade came after lawmakers had negotiated until the very last minute to reach a deal on the debt ceiling earlier this year. They risked the first default of the country. The January 6 uprising was also a significant factor.
CNN reported that representatives of Fitch Ratings raised the 6th January insurrection repeatedly during a meeting with officials from the Biden administration. They emphasized the importance of the event for US governance. In their full report, the credit agency didn't mention the insurrection.
CNN's comment request to Fitch was not immediately responded to.
The US debt was long considered to be the safest and most reliable of all safe havens. However, Tuesday's downgrade suggests that its shine has diminished. The downgrade could have a ripple effect on everything from mortgage rates Americans pay to contracts all over the world.
This could lead to investors selling US Treasuries and a rise in yields, which are used as a reference for the interest rates of a wide range of loans.
Fitch cited a number of reasons for its downgrade. These included 'an expected fiscal decline over the next three to five years, an increasing general government debt load, and a lack of effective governance in comparison to peers rated 'AA' or 'AAA,' which has been manifested by repeated debt ceiling standoffs, and last-minute solutions.
Fitch stated that the decision was not just due to the latest standoff over the debt ceiling, but also because of a'steady deterioration' in governance standards during the past 20 years regarding 'fiscal matters' and 'debt issues'.
Democrats react to the downgrade
Biden Administration officials protested the ratings reduction.
Janet Yellen, Treasury Secretary, said in a Tuesday statement that she "strongly disagreed" with Fitch's decision. The change announced by Fitch Ratings today is arbitrary, and based upon outdated data.
Karine Jean-Pierre, White House Press Secretary, said in a press release that "we strongly disagree with the decision" and cited concerns similar to those raised about Fitch’s modeling.
She added that the extreme actions of Republican officials, from cheerleading default to undermining democracy and governance, and even extending deficit-busting tax breaks for corporations and the wealthy, are a constant threat to our economy.
Senate Majority leader Chuck Schumer has blamed House Republicans on the downgrade. He said in a statement that the'reckless brinksmanship' and 'flirting with default' had negative consequences for this country.
The spokesperson for House Speaker Kevin McCarthy didn't immediately respond to requests for comment about Fitch downgrading the rating.
S&P was the last major rating agency to downgrade US debt in 2011. In both cases the limits were only raised after lengthy negotiations.
The S&P decision had a huge impact on the market, resulting in steep stock market drops and rising bond yields.
Since 1917, Moody's Investors Service assigned the United States an AAA credit rating. The new Fitch credit rating places the country on par with Austria, Finland and Germany but below Switzerland.
S&P maintained its AA+ ratings on the US following the 2011 downgrade, while Moody's kept its AAA ratings.
A senior administration official declined to speculate on whether or not other major credit agencies will follow Fitch’s lead, but did note that Fitch is the only agency to place the US under a negative rating.
Fitch did not respond immediately to CNN's requests for comment regarding the Biden Administration official's accusations that Fitch's modeling is flawed
The markets were largely unaffected by Fitch’s downgrade of the US credit rating in Tuesday’s after-hours trading.
Dow Jones Industrial Average futures, S&P500 and Nasdaq 100 futures all fell by less than 1 percent following the announcement.
Larry Summers, former Treasury Secretary, said Fitch's decisions were 'bizarre' and 'inept', especially as the US economy looks stronger than anticipated', he wrote in a tweet, now known as X.