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US Credit Downgrade: Fitch Cites Fiscal Concerns and Political Polarization

Fitch Ratings' recent unexpected decision to lower the US credit rating reflects concerns over fiscal stability, political polarization, and deteriorating governance.

Fitch Ratings building
Fitch Ratings building

Fitch Decision Tied to Governance and Polarization Concerns

In a shocking development, Fitch Ratings decided to lower the US credit rating, attributing this primarily to concerns over fiscal instability and deterioration in US governance, as stated by Richard Francis, a senior director at Fitch Ratings. An increase in political polarization manifested notably in the Jan. 6 insurrection, was also a significant factor contributing to this decision.

Investors Stunned by US Credit Rating Downgrade

Investors were taken aback when Fitch downgraded the United States from AAA to AA+ on Tuesday. The agency pointed towards an expected fiscal deterioration in the forthcoming three years, and the continued brinkmanship of debt ceiling negotiations, threatening the government’s ability to settle its obligations, as key reasons for this move.

The Impact of Governance Deterioration and Political Polarization

The Fitch agency's decision was influenced by the perceived worsening of US governance. This decrease in confidence in the government's ability to manage fiscal and debt issues is worrisome. This deterioration, paired with the country's increasing political polarization, was exemplified by the Jan. 6 insurrection. Fitch underscored these issues in discussions with the Treasury before implementing the downgrade.

Fitch Ratings Joins S&P in US Credit Downgrade

With this decision, Fitch has become the second major rating agency, after Standard & Poor’s, to deprive the United States of its triple-A rating. The significance of these incidents — the debt ceiling and the Jan. 6 insurrection — demonstrates the current state of polarization in the US. As Francis observed, "The Democrats have gone further left and Republicans further right, so the middle is kind of falling apart."

US Treasury Secretary Responds to Credit Downgrade

The credit downgrade by Fitch Ratings met with criticism from US Treasury Secretary Janet Yellen, who labeled the decision as "arbitrary and based on outdated data." It remains to be seen how this downgrade will impact the fiscal and political landscape in the US in the coming years.