Fitch Downgrades US Credit Rating

Following the review of the US rating, Fitch also forecasts a recession in the US economy between the fourth quarter of 2023 and the first three months of 2024.

The international agency Fitch took away the prestigious three A’s from the United States, downgrading the rating of the world’s largest economy from “AAA” to “AA” with a “stable” outlook. The administration of President Joe Biden “is lacking a medium-term fiscal strategy,” Fitch experts emphasize.

The rating agency’s decision primarily reflects the current problems with the US state debt. The statement accompanying Fitch’s radical decision says that “the downgrade reflects the expected worsening of the budget over the next three years.” Rating analysts believe that repeated skirmishes at the top of Washington over the debt ceiling and last-minute nearly-deadlock decisions have deeply eroded “confidence in budget management” over the years.

As the daily newspaper Il Sole 24 Ore recalled, after the downgrade by Fitch, Moody’s is the only agency that seems to still believe in the White House’s ability to solve the problems accumulated over the years and “continues to maintain” the triple A rating for the United States.

As for the trend of the American economy in the short term, Fitch experts, on top of everything, have predicted a recession that will manifest itself between the fourth quarter of 2023 and the first three months of 2024.

“In 2023, US GDP will have to grow by 1.2 percent,” the international agency calculated. Therefore, a significant “slowdown” of growth is predicted, compared to last year’s 2.1%, while a modest growth of only 0.5% is forecasted for 2024. Fitch expects that in 2023 the level of the state debt will rise above the pre-crisis level by 112.9%.

In this situation, a further increase in the interest rate by the Fed is inevitable: according to Fitch forecasts, the decision may be made by the Fed “as early as September 2023.” On July 26, the Fed raised interest rates by 0.25%, bringing them to their highest level in 22 years.

The rating downgrade caused a real earthquake in the White House, which declared its “deep disagreement with Fitch’s decision.” As presidential spokeswoman Karine Jean-Pierre said, the downgrade “challenges reality” at the very moment when President Biden “ignited the fastest recovery among the world’s largest economies.” Treasury Secretary Janet Yellen also sharply criticized Fitch’s decision, calling it “arbitrary,” “outdated,” and based on “obsolete” information.