Fitch downgrades U.S. Credit rating from top score

Following the resolution of the debt-ceiling crisis, Fitch has downgraded the credit rating for the U.S. government from AAA to AA+.

In a statement, the rating agency expressed concerns about the declining standards of governance in the country, particularly in fiscal and debt matters. Fitch highlighted the Washington brinkmanship over the debt ceiling as an example of the erosion of governance. However, despite the downgrade, the U.S. still maintains a high rating due to its large, advanced, well-diversified, and high-income economy.

Treasury Secretary Janet Yellen strongly disagreed with Fitch's decision, calling it arbitrary and based on outdated data. Fitch is one of the three major credit rating agencies that assess a company or country's ability to repay debts. These agencies use rating scales to determine the risk associated with a debtor's ability to make timely payments.

Fitch's decision came after placing the U.S.'s AAA rating on negative watch in May, citing political brinksmanship over the debt ceiling. The only other time the U.S. faced a credit downgrade was in 2011 when S&P lowered its rating from AAA to AA+, coinciding with a stock market drop and increased interest rates.

President Joe Biden signed a bipartisan bill on June 3 to lift the federal debt ceiling, avoiding a default that could have had severe consequences for the U.S. and global economy. However, the Fitch downgrade raises concerns among analysts and Treasury bondholders about the risks associated with partisan disputes over the debt ceiling.

Fitch's downgrade reflects a loss of confidence in the country's fiscal management due to repeated debt-limit political standoffs and last-minute resolutions. S&P's credit downgrade in 2011 also highlighted concerns about political brinksmanship compromising federal policymaking effectiveness and predictability.

Although the debt ceiling sets a cap on government borrowing, it does not limit spending. The federal budget process determines the government's spending in different areas. Historically, the debt limit has been routinely raised or suspended, with Congress acting numerous times to resolve it under both Republican and Democratic administrations.