The odd logic to Fitch's US debt downgrade
Neil Irwin
Fitch Ratings downgraded its assessment of the U.S. government's creditworthiness Tuesday afternoon, declaring that Uncle Sam is a mere AA+ rated credit, no longer AAA.
The big picture: It was a weird decision, not because the U.S. fiscal outlook is pretty (it isn't) but because of Fitch's stated reasons.
Why it matters: The U.S. government does face tough fiscal tradeoffs in the decade ahead, with interest costs poised to eat up a growing share of the economy, deficits crowding out private investment and Social Security facing steep automatic cuts in 2033.
But the issue isn't so much one of creditworthiness, as implied by the Fitch downgrade. It's when, and on what terms, those adjustments happen.
What they're saying: In their downgrade, Fitch analysts cited "the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance" compared to peers "over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions."
They also note a potential recession ahead.
Fitch analysts also reportedly raised the issue of the January 6, 2021, insurrection at the U.S. Capitol as a warning sign of governance problems in conversations with U.S. officials.
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https://www.axios.com/2023/08/02/fitch-downgrade-us-rating
