U.S. Foreign-Currency Rating Downgraded by Fitch

Fitch Ratings has recently downgraded the United States' long-term foreign-currency issuer default rating from 'AAA' to 'AA+'. This downgrade is a reflection of the expected financial deterioration in the coming years and the government's growing debt burden.

Erosion of Governance and Confidence in Fiscal Management

Fitch's decision to downgrade the rating also takes into account an "erosion of governance" compared to other highly-rated countries over the last two decades. The repeated political standoffs and last-minute resolutions regarding the debt limit have significantly undermined confidence in fiscal management.

Projected Deficit Growth

Fitch expects the general government deficit to increase to 6.3% of gross domestic product (GDP) in 2023, up from 3.7% in the previous year. This anticipated growth in the deficit is attributed to cyclically weaker federal revenues, new spending initiatives, and a higher interest burden.

Moreover, Fitch predicts that the deficit will further widen to 6.6% in 2024 and reach 6.9% in 2025. These projections are based on factors such as slowing GDP growth and an increased interest rate burden.

Treasury Secretary's Response

U.S. Treasury Secretary Janet Yellen has expressed strong disagreement with Fitch's decision. Yellen argues that the agency's change is arbitrary and relies on outdated data. Yellen points out that Fitch's quantitative ratings model has declined between 2018 and 2020, yet they are making this change without fully considering the progress seen in many key indicators.