A first since 2011. The United States lost its precious AAA rating on Tuesday, August 1, the Fitch agency having downgraded it by one notch, to AA +, blaming in particular the repeated political crises on the debt ceiling of the United States. have eroded the governance of the country.
S&P was the first to deprive the United States of “triple A” in 2011, and has not since raised the rating, which has remained at AA+. Only the Moody’s agency still assigns, at this stage, the best credit rating to the debt of the world’s largest economy.
Fitch justified its decision on Tuesday primarily by the consequences of “repeated stalemates on the debt ceiling”, stressing that these “political clashes […] and last minute resolutions have eroded confidence in budget management”.
At regular intervals, the debt ceiling needs to be raised by Congress so that the country escapes default. This procedure has become the object of an intense and repeated political battle. Thus, at the beginning of June, the administration of Democratic President Joe Biden and the Republican opposition had reached an agreement in extremis.
Yet beyond this agreement, “there has been a steady deterioration in governance standards over the past 20 years, including in fiscal and debt matters,” Fitch lamented.
No lasting impact on the markets
His decision, unexpected and unprecedented for more than 10 years within the three main rating agencies, did not seem to worry analysts interviewed Tuesday evening by AFP.
“I do not expect the downgrade to have a lasting impact on the market,” commented John Canavan of Oxford Economics, who does not anticipate “major volatility” when US markets open on Wednesday. Morning.
In the short term, however, this “could lead some investors to reduce their exposure to the Treasury”, notes for his part Mickey Levy, of Berenberg. But in the longer term, he sees “no serious implications. I think everyone is quite aware of the mounting debt situation”.
“We strongly disapprove of this decision,” White House spokeswoman Karine Jean-Pierre said in a statement, accusing the administration of the former President of the United States, Republican Donald Trump, of having led a deterioration in the criteria taken into account by Fitch to establish its ratings.
“It flies in the face of reality to downgrade the United States at a time when President Biden has achieved the strongest recovery of any major economy in the world,” she added. In the sights of the Biden administration: Donald Trump’s tax reform in 2017, which reduced the taxes of the richest and those of companies. Republicans, for their part, regularly accuse Democrats of reckless spending.
Lack of budgetary framework
Tax cuts, but also significant spending, were also singled out by Fitch in his decision, without however targeting any administration specifically. The “expected budgetary deterioration over the next three years”, as well as “a high and growing public debt burden”, thus represent significant risks, according to the rating agency.
“The government does not have a medium-term budgetary framework […] and has a complex budget process. These factors, along with several economic shocks, tax cuts and new spending initiatives, have contributed to successive increases in debt over the past decade,” Fitch noted. “Furthermore, only limited progress have been made to meet the medium-term challenges linked to the increase in the costs of the pension system and health insurance due to the aging of the population.
Fitch warned at the end of May that it could downgrade the United States’ rating because of the risk of default. The outlook changes from negative to stable, which means that Fitch does not anticipate any further deterioration in the short term. While many economists, in particular those of the American central bank (Fed), no longer anticipate a recession for the United States, Fitch is still counting on a “slight” contraction of American GDP in the 4th quarter of 2023 and 1st quarter of 2024 .
The agency notes, despite its criticisms, that the US economy is “well diversified” and has a “high income, supported by a dynamic business environment”. “The US dollar is the world’s most important reserve currency, which gives the government extraordinary funding flexibility,” it said.