Economy

Fitch: Governance Deterioration Behind U.S. Credit Rating Downgrade

Fitch: Governance Deterioration Behind U.S. Credit Rating Downgrade

Richard Francis, senior director of sovereign ratings at Fitch Ratings, announced to Reuters on Wednesday that the agency decided to downgrade the U.S. credit rating due to financial concerns, governance deterioration, and the evident polarization during the events of January 6. In a move that surprised investors, Fitch downgraded the United States from AAA to AA+ on Tuesday, citing expected financial deterioration over the next three years and the recurring negotiations regarding the government debt ceiling, which threaten the administration's ability to meet its obligations.

Francis stated that the agency's decision was based on several reasons, including the notable decline in U.S. governance, which he argued diminishes confidence in the government's ability to address financial issues and debt. Fitch had held meetings with the Treasury Department prior to the downgrade. For her part, U.S. Treasury Secretary Janet Yellen expressed her objection to Fitch's downgrade of the U.S. credit rating on Wednesday. Yellen described the downgrade as "completely unwarranted," as it ignored the significant improvement in governance indicators during President Joe Biden's administration, alongside the strength of the U.S. economy.

She had noted on Tuesday that Fitch's announcement did not take into account the robustness of the U.S. economy, low unemployment rates, declining inflation, ongoing growth, and innovation strength. Yellen stated, "Fitch's decision is surprising in light of the economic strength we are witnessing in the United States... I strongly disagree with Fitch's decision and believe it is completely unwarranted." Officials at the Treasury indicated that Fitch mentioned its decision was based on the deterioration of governance during former President Donald Trump's administration. Richard Francis told Reuters that the deterioration was reflected in some way in the storming of the U.S. Capitol on January 6, 2021, as Trump sought to overturn the 2020 election results. He added that the deterioration was also visible in the struggle over the debt ceiling this year and the increasing polarization between the two main political parties, making consensus more elusive.

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