It is not a rising labor market, a strong dollar, or a sturdy economy that will help the United States reclaim its top rating from Fitch. According to the corporation, it will take a significant step forward in governance.
On Tuesday, Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA, sending global stock markets down on Wednesday. In May, the agency downgraded the country’s rating, citing the debt ceiling issue.
“We’ve seen a steady deterioration in key metrics for the United States for a number of years.” “In 2007, general government debt was less than 60%, and it’s now 113%, so there has been a clear deterioration,” Richard Francis, Fitch’s co-head of America’s sovereign ratings, said on CNBC’s “Squawk on the Street” on Wednesday. “Additionally, we expect fiscal deficits to rise over the next three years, and we expect debt to rise over the next three years.”
In addition to the Jan. 6, 2021 insurgency, Francis stated that the rating agency has observed “constant brinkmanship” concerning the debt ceiling by both Republicans and Democrats. This has hampered the US government’s ability to find real answers to mounting economic challenges, particularly those involving entitlement programs such as Social Security and Medicare, he claims.
To reclaim the top rating, Francis stated that the rating agency will seek for a long-term economic solution that tackles entitlement programs, as well as a willingness to examine both the income and spending sides of such programs. He also stated that Fitch would want to see the deficit reduced and the government address the debt ceiling problem by suspending or eliminating it.
“Given the high level of debt, the increasing deficits that we’re expecting, and the kind of deterioration in governance and unwillingness to really tackle these issues, we don’t think that’s consistent with the AAA anymore,” Francis said.
Given the resiliency of the nation’s economy, many comments, from high-profile economists to the White House, have been skeptical or dismissive of the downgrading.
In response to criticism, Francis stated that, while the economy is essential and may have an influence on the overall economic picture of the United States, it will not be adequate to address governance difficulties.
“This idea that the economy is somehow avoiding a recession and there should be no downgrade, that’s just not what we’re looking at,” he added. “We’re looking at a more fundamental picture of the United States, creditworthiness, and also kind of what we expect to happen over the next few years.”