Aug. 1 (UPI) — U.S. stock futures opened lower Tuesday evening on news that credit rating agency Fitch has downgraded the United States’ “Long-Term Foreign-Currency Issuer Default Rating” from its top-ranked AAA to AA+.
According to Fitch, the agency lowered the United States’ credit rating Tuesday after issuing a warning in May that the nation’s top-tier rating could be downgraded as the political battle over the debt ceiling waged on.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said as the agency pointed to “expected fiscal deterioration over the next three years.”
In May, Fitch placed the United States’ AAA rating on a “negative watch” as lawmakers argued over how to keep the federal government from running out of money by June 5. President Joe Biden signed the debt ceiling bill on June 2.
Fitch also blamed Tuesday’s downgrade on higher deficit predictions, Federal Reserve rate hikes to curb inflation and forecasts predicting Social Security would be depleted within a decade.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the ratings agency said.
Fitch’s downgrade brings higher borrowing costs for the U.S. government and could cause the dollar to weaken, as the ratings agency predicts a “mild” recession for the U.S. economy at the end of this year and into 2024.
Treasury Secretary Janet Yellen said Tuesday she strongly disagreed with Fitch Ratings‘ downgrade, calling it “arbitrary and based on outdated data.” Yellen promised “the American economy is fundamentally strong.”
The White House also “strongly disagreed” with the ratings agency’s decision as the Biden administration blamed Republicans.
“The ratings model used by Fitch declined under President [Donald] Trump and then improved under President Biden, and it defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” White House Press Secretary Karine Jean-Pierre said in a statement.
“It’s clear that extremism by Republican officials — from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations — is a continued threat to our economy,” Jean-Pierre added.
The last time a ratings agency downgraded the United States was in 2011 when Standard & Poor’s cut the nation’s credit rating to AA+ after lawmakers avoided a default.
Dow futures slid about 100 points Tuesday evening shortly after Fitch issued its downgrade.