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The announcement from one of the nation’s largest credit bureaus sent shock waves through markets on Wall Street and drew an angry response from the White House. With the announcement, the first economy in the world no longer has the highest possible credit rating and puts pressure on the Government due to the possible increase in the cost of borrowing.
The growing debt and the “deterioration in governance standards” were the two arguments of the credit agency Fitch Ratings to lower the rating of the United States by one level, which went from AAA, the highest possible level, to AA+.
This is the second time in US history that a major agency has downgraded the country’s ratings, after Standard & Poor’s did the same in 2011 due to a prolonged chill on the debt ceiling, which, in turn, At the time, it raised Treasury borrowing costs that year by an estimated $1.3 billion.
The announcement on Tuesday, August 2, comes just one month after President Joe Biden signed the debt ceiling bill that saved the federal government from defaulting on payments.
A signature that took place on June 3 after constant political disputes between Republicans and Democrats who tried to reach agreements on the country’s fiscal budget and taxes.
And that was precisely one of Fitch’s arguments for lowering its rating. The agency believes that “Repeated debt limit clashes and last-minute resolutions reflect expected fiscal deterioration over the next three years.”
“In Fitch’s opinion, there has been a steady deterioration in governance standards over the last 20 years, including on debt and tax matters, despite the bipartisan agreement in June to suspend the debt limit until January 2025,” it explained. the agency.
The news affected world markets this Tuesday, the opening of Wall Street was negative with the S&P 500 indicator reporting losses of more than 1% and the Nasdaq of technology companies with a drop of more than 2%.
“It is an arbitrary decision”
Biden administration officials strongly criticized the rating cut and for the Treasury secretary the decision was “arbitrary” and based on information that is outdated for the moment the country lives.
“Many of these measures, including those related to governance, have shown improvement over the course of this Administration, with the passage of bipartisan legislation to address the debt limit, investment in infrastructure, and making other investments in America’s competitiveness. Yellen said.
White House press secretary Karine Jean-Pierre said Fitch’s decision “defies reality” given that the United States had the “strongest recovery of any major economy in the world,” while accusing the Republicans of being a threat to American finances.
In June, the annual inflation rate stood at 3%, the eleventh consecutive month of a drop from the 8.5% year-on-year that it reached in July 2022, and quarter by quarter the country has achieved positive economic growth that moves it away from the dreaded technical recession.
However, in the months that Washington had Fitch’s endorsement and its credit rating, the Biden administration and its officials used that data to flaunt the strength of the economy and considered this data important in assessing US confidence. .
With Reuters and AP.
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