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US Currency Rating Gets Knocked Down a Peg by Fitch Amid Broad Fiscal Concerns

2 mins
Updated by Kyle Baird
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In Brief

  • Fitch Ratings agency downgrades US long-term foreign-currency issuer default rating due to rising national debts.
  • The downgrade from AAA to AA+ reflects expected fiscal deterioration, a high and growing debt burden, and governance erosion.
  • Treasury Secretary Janet Yellen disagrees with Fitch Ratings' decision, calling it arbitrary and based on outdated data.
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Fitch Ratings agency has downgraded the United States’ long-term foreign-currency issuer default rating amid rising concerns over national debts. Furthermore, the greenback continues to weaken against a basket of global currencies and commodities. 

On Aug. 1, the “big three” credit rating agency Fitch cut the American currency rating from AAA to AA+, citing “expected fiscal deterioration over the next three years.”

Uncle Sam Gets a Downgrade 

Fitch Ratings stated that there was an erosion of governance and a growing general debt burden. The US national debt is a whopping $32.6 trillion at present. 

“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance.”

The rating agency placed the nation’s AAA rating on negative watch in May, blaming the debt ceiling fiasco. Furthermore, it mentioned the debt limit feud in its latest report:

“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.”

Confidence has been eroded due to the “repeated debt-limit political standoffs and last-minute resolutions,” it added.

It also expected the general government deficit to rise to 6.3% of GDP in 2023 from 3.7% in 2022. Moreover, it added that this reflected “cyclically weaker federal revenues, new spending initiatives, and a higher interest burden.” 

Greenback Weakening 

A greater concern was the looming premise of a US recession by the end of this year. 

“Tighter credit conditions, weakening business investment, and a slowdown in consumption will push the US economy into a mild recession in 4Q23 and 1Q24, according to Fitch projections.” 

Furthermore, the Federal Reserve raised interest rates by 25 basis points in March, May, and July to current levels of 5.5%. Fitch expects one further hike to 5.75% by September. 

Treasury Secretary Janet Yellen was not pleased with the downgrade. She stated,

“I strongly disagree with Fitch Ratings’ decision. The change … announced today is arbitrary and based on outdated data.”

Since the start of July, the US Dollar index has weakened by almost 2%. This has boosted commodity prices which are often seen as safe haven investments. Gold prices have ticked higher since the beginning of July, adding 1.6% to reach $1,948/oz on Aug. 2.

Crypto markets are also up 2.2% on the day, but they have remained sideways since the middle of March. 

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...