US Loses AAA Credit Rating from Fitch — Biden White House Says Republican Extremism Is A 'Continued Threat' To Economy

On Tuesday, Fitch downgraded the U.S. government’s top credit rating, a move that surprised investors and drew a strong response from the White House, despite the resolution of the debt ceiling crisis two months ago.

What Happened: Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government's ability to pay its bills, Reuters reports.

This decision comes two months after the Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement that lifted the government’s $31.4 trillion borrowing limit, ending months of political brinkmanship.

White House Press Secretary Karine Jean-Pierre said that the ratings model used by Fitch declined under President Donald Trump and then improved under Biden.

“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,” said Jean-Pierre on X, formerly Twitter.

The ratings model used by Fitch declined under President 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.

— Karine Jean-Pierre (@PressSec) August 1, 2023

The White House said in a statement that it strongly disagrees with this decision. Instead it blamed Republicans’ actions as a “continued threat” to the U.S. economy.

“President Biden has delivered the strongest recovery of any major economy in the world. And 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.”

See Also: Paul Krugman Believes Ratings Agencies Are Just Irrelevant

Why It Matters: Treasury Secretary Janet Yellen also disagreed with Fitch’s downgrade calling it “arbitrary and based on outdated data,” reported Reuters.

The downgrade is significant as it marks the second time a major rating agency has stripped the United States of its triple-A rating, the first being Standard & Poor's.

This decision reflects the ongoing concerns about the U.S. government’s fiscal management and the political standoffs over the debt limit, as earlier discussed on Benzinga.

The downgrade could potentially increase the financing costs for the U.S. government. However, some analysts, like Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA, believe the impact of the downgrade will be limited.

Venture capitalist Chamath Palihapitiya has previously stated that credit rating downgrades may not significantly impact the economy, as reported by Benzinga. He noted that after the Standard & Poor’s downgrade in 2011, there was no significant impact on the economy.

Read Next: This Day In Market History: U.S. Government Receives First And Only Credit Rating Downgrade

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