Fitch downgrades US Credit Rating due to Economic Concerns
📌Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating from AAA to AA+ due to expected fiscal deterioration, governance erosion, and a growing debt burden. The agency cited repeated political standoffs over the debt limit and last-minute resolutions, eroding confidence in fiscal management.
📌This downgrade led to a drop in U.S. stock futures, with Dow futures declining about 100 points. In May, Fitch had already placed the nation’s AAA rating on negative watch, blaming the debt ceiling fight when lawmakers clashed over an agreement to avoid a government funding crisis. This recent debt limit feud was mentioned again in the Tuesday downgrade.
📌Fitch also highlighted the rising government deficit, which it expects to reach 6.3% of GDP in 2023, up from 3.7% in 2022. Despite a bipartisan agreement to suspend the debt limit until January 2025, Fitch observed a steady deterioration in governance standards over the past two decades concerning fiscal and debt matters.
📌The rating agency warned of potential economic challenges, including tightening credit conditions, weakening business investment, and a consumption slowdown, possibly leading to a mild recession in the fourth quarter of 2023 and the first quarter of the following year.