The Fitch Ratings logo can be seen at their office in the Canary Wharf financial district of London, Great Britain.
Reinhard Krause | Reuters
It is not a growing job market, a strong US dollar or a resilient economy that will help the US regain Fitch’s top rating. According to the company, this is a major step forward in management.
Fitch Ratings on Tuesday downgraded the default rating of U.S. foreign currency issuers from AAA to AA+, sending global stock markets lower on Wednesday. The rating agency had put the country’s rating on ‘negative watch’ in May, citing the debt ceiling issue.
“This is a steady deterioration that we have been seeing in key figures for the United States for a number of years. In 2007, public debt was less than 60% and now it is 113%, so there is a clear deterioration.” Richard Francis, Fitch’s co-head of U.S. sovereign ratings, said Wednesday on CNBC’s “Squawk on the Street.” “In addition, we expect budget deficits to rise over the next three years and debt to continue to rise over the next three years.”
Francis said that in addition to the Jan. 6, 2021, uprising, the ratings agency has noted “constant disarray” around the debt ceiling among both Republicans and Democrats. That has prevented the U.S. government from coming up with meaningful solutions to address growing budget problems, especially around entitlement programs such as Social Security and Medicare, he said.
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To regain the top rating, Francis said the rating agency would look for a long-term fiscal solution that focuses on entitlement programs and a willingness to look at both the revenue and expenditure sides of such programs. He also said Fitch would aim to reduce the deficit, and that the government would address the debt ceiling problem by suspending or getting rid of it.
“Given the high level of debt, given the increasing deficits that we expect, and given the kind of deterioration in governance and the unwillingness to really address these issues, we don’t think this is more consistent with the AAA,” said Francis. .
Many responses, from leading economists to the White House, were critical or dismissive of the cut, given the resilience of the country’s economy.
Responding to the opposition, Francis said that while the economy is very important and could have an impact on the overall US fiscal picture, this will not be enough to address the governance problems.
“The idea that somehow we can avoid a recession with the economy and there shouldn’t be a downgrade, that’s just not what we’re looking at,” he said. “We’re looking at a more fundamental view of the United States, its creditworthiness and also what we expect to happen in the coming years.”
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