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Ratings agency Fitch on Tuesday (Aug 1) downgraded the US government’s top credit rating to AA+ from AAA, citing an expected fiscal deterioration over the next three years as well as a high and growing general government debt burden.
The downgrade follows a debt ceiling agreement in June that came after months of political brinkmanship and ultimately lifted the government’s US$31.4 trillion debt ceiling.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the rating agency said in a statement.
Investors use credit ratings to assess the risk profile of companies and governments when they raise financing in the debt capital markets.
US Treasury Secretary Janet Yellen said she disagreed with Fitch’s downgrade, in a statement that called it “arbitrary and based on outdated data.”
In a previous debt ceiling crisis in 2011, Standard & Poor’s cut the US top ‘AAA’ rating by one notch a few days after a debt ceiling deal, citing political polarisation and insufficient steps to right the nation’s fiscal outlook. Its rating is still ‘AA-plus’ – its second highest.
Fitch had placed its “AAA” rating of US sovereign debt on watch for a possible downgrade in May, citing downside risks including political brinkmanship and a growing debt burden.
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