WASHINGTON − The Biden administration lashed out at at Fitch Ratings’ decision to downgrade the nation’s credit rating, arguing it doesn’t reflect improved economic metrics and that the move was based partially on political polarization stemming from the Jan. 6, 2021, attack on the Capitol.
The lowered credit rating, which Fitch dropped one notch to AA+ from AAA, paints a contrasting picture with the economic rebound President Joe Biden has touted. Biden has pointed to slowing inflation for 12 straight months, the lowest unemployment since the 1960s, a robust jobs market and an expanding manufacturing sector, while dubbing his economic agenda “Bidenomics.”
Treasury Secretary Janet Yellen called Fitch’s decision to downgrade “arbitrary and based on outdated data,” noting that the credit agency’s quantitative ratings model dropped sharply between 2018 and 2020 and has picked up since Biden was elected.
“Yet Fitch is announcing its change now, despite the progress that we see in many of the indicators that Fitch relies on for its decision,” Yellen said, adding that the U.S. economy remains “fundamentally strong.”
White House press secretary Karine Jean-Pierre said, “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.”
Fitch Ratings said the downgrade reflects an expected “fiscal deterioration” over the next three years, a growing government debt burden and an “erosion of governance.” The agency pointed to “political standoffs and last-minute resolutions” that have “eroded confidence in fiscal management.”
For months this year, Biden and Republicans who control the House of Representatives were at a stalemate over raising the debt ceiling, putting the nation on the brink of default before a last-minute deal was passed by Congress in June to increase how much money the federal government can borrow.
Yet Fitch also expressed concerns to Biden administration officials about the political upheaval from the Jan. 6, 2021, attack on the Capitol, which was waged by supporters of former President Donald Trump, according to a White House official familiar with the agency’s explanation to the administration.
Richard Francis, a senior director at Fitch Ratings, confirmed that Fitch highlighted the polarization on display during the Jan. 6 insurrection in discussions with Treasury officials, according to Reuters.
Other economists also questioned Fitch’s downgrade.
“The United States faces serious long-run fiscal challenges,” said former Treasury Secretary Larry Summers, who has criticized the Biden’s administration’s spending programs. “But the decision of a credit rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept.”
Mark Zandi, chief of Moody’s Analytics, said Fitch’s downgrade is “off-base,” arguing that Fitch’s projection of expected fiscal deterioration is based in part on a recession forecast that looks increasingly unlikely.
“They rate the sovereign debt of a rather lengthy list of countries AAA. Really?” Zandi said on X, formerly known as Twitter. “Ask global investors whose bonds they would rather own if push comes to shove in the global economy − it’s those of the U.S. Treasury.”
The first major downgrade since 2011
The credit downgrade marks the first by a major rating agency since Standard & Poor’s downgrade following a debt ceiling standoff in 2011.
Fitch’s previous credit rating for the U.S. − AAA − was the highest possible, but the new AA+ rating is still well within investment grade. S&P, meanwhile, has maintained its AA+ rating on the U.S. since the 2011 downgrade while Moody’s, another major rating agency, has kept its AAA rating for the U.S.
Some economics said the latest downgrade was justified given the nation’s rising debt.
“This is a warning shot across the U.S. government’s bow that it needs to right its fiscal ship,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting. “You can’t just spend trillions of dollars more than you have in revenue every year and expect no ill consequences.”
Republicans in Congress seized on the downgrade as evidence that Biden’s trillions in new spending to address infrastructure, climate change and domestic manufacturing has put the nation’s finances at risk.
“The downgrade of our credit rating is proof positive that the negative economic trajectory caused by spend-thirsty legislators is leading our Nation and the American People to ruin,” Rep. Scott Perry, R-Pa., wrote on X. “We MUST change the spending addiction in DC & plot a new course toward fiscal literacy and sanity.”
Contributing: USA TODAY staff reporter Paul Davidson. Reach Joey Garrison on X @joeygarrison.
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