(Washington) The United States lost its precious AAA rating on Friday, a first since 2011, the Fitch agency having downgraded it by one notch, to AA, blaming in particular the repeated political crises on the debt ceiling. have eroded the governance of the country.
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Fitch justified his decision on Tuesday primarily on the consequences of “repeated standoffs over the debt ceiling”, pointing out that these “political clashes … and last-minute resolutions have eroded confidence in fiscal management”.
At regular intervals, the debt ceiling needs to be raised by Congress to keep the country from defaulting. This procedure has become the object of an intense and repeated political battle.
Thus, at the beginning of June, the administration of Democratic President Joe Biden and the Republican opposition had reached an agreement in extremis.
Yet beyond this agreement, “there has been a steady deterioration in governance standards over the past 20 years, including in fiscal and debt matters,” Fitch lamented.
His decision, unexpected and unprecedented for more than 10 years within the three main rating agencies, did not seem to worry analysts interviewed Tuesday evening by AFP.
“I don’t expect the downgrade to have a lasting impact on the market,” said John Canavan of Oxford Economics, who doesn’t anticipate “major volatility” when US markets open on Wednesday. Morning.
In the short term, however, this “could lead some investors to reduce their Treasury exposure,” notes Berenberg’s Mickey Levy.
But in the longer term, he sees “no serious implications.” I think everyone is quite aware of the growing debt situation.”
“We strongly disagree with this decision,” White House spokeswoman Karine Jean-Pierre said in a statement, accusing the administration of former US President Republican Donald Trump of leading to a deterioration in the criteria taken into account by Fitch to establish its ratings.
“It flies in the face of reality to downgrade the United States at a time when President Biden has achieved the strongest recovery of any major economy in the world,” she added.
In the sights of the Biden administration: Donald Trump’s tax reform in 2017, which reduced taxes for the wealthy and those of corporations.
Republicans, for their part, regularly accuse Democrats of reckless spending.
Tax cuts, but also significant spending, were also singled out by Fitch in his decision, without however targeting any administration specifically.
The “expected fiscal deterioration over the next three years”, as well as “a high and growing public debt burden”, thus represent significant risks, according to the rating agency.
“The government does not have a medium-term budget framework […] and has a complex budget process. These factors, along with several economic shocks, tax cuts and new spending initiatives, have contributed to successive increases in debt over the past decade,” Fitch noted.
“Furthermore, only limited progress has been made to address the medium-term challenges related to rising pension and health insurance costs due to the aging population,” he further underlined. rating agency.
Fitch had warned at the end of May that it could downgrade the United States’ rating, due to the risk of default.
The outlook changes from negative to stable, which means that Fitch does not anticipate any further deterioration in the short term.
While many economists, including those at the US central bank (Fed), no longer expect a recession for the United States, Fitch still expects a “slight” contraction in US GDP in the 4th quarter of 2023 and 1st quarter of 2024 .
The agency notes, despite its criticisms, that the U.S. economy is “well-diversified” and has “high income, supported by a vibrant business environment.”
“The US dollar is the most important reserve currency in the world, which gives the government extraordinary funding flexibility,” it said.