Fitch Ratings Downgrades U.S. Credit Score, Unleashes White House Fury
Key takeaways
- Fitch Ratings has downgraded the U.S. government’s long-term foreign-currency default rating from the top score
- The credit rating agency justified its decision with the uncertainty around consecutive debt-ceiling crises, most recently this year with an eleventh-hour deal
- The White House has condemned the move, which is now the second time the U.S. has seen its status downgraded
Remember that pesky little debt-ceiling fiasco that nearly sparked a massive financial meltdown? It was all sorted in the end, but the credit rating agencies gave the U.S. some major side eye over it.
Fitch Ratings decided to make it official by formally downgrading the U.S.’ credit rating, which prompted an angry outcry from the White House. But the damage was done as stock markets worldwide tumbled at the news. Let’s get into the details.
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What’s the beef with Fitch Ratings?
Rating agency Fitch Ratings has downgraded the U.S. government’s long-term foreign-currency default rating from the top score, AAA, to the rung below, AA+, despite the debt-ceiling negotiations concluding in late May.
The agency cited eleventh-hour debt ceiling negotiations that threatened the global economy’s stability, saying, “The repeated debt limit political standoffs and last-minute resolutions have eroded confidence in fiscal management”. Ouch.
Fitch isn’t the first to do it — Standard & Poor did the same in 2011 after that debt-ceiling crisis — but Fitch has had the U.S. on negative watch since May. Needless to say, the news brought ire from the White House, with Treasury Secretary Janet Yellen calling the move “arbitrary and based on outdated data”.
What was the market reaction?
If there’s one thing the stock market doesn’t like, it’s a nasty surprise. The Dow Jones Industrial Average fell 0.8%, the S&P 500 moved down 1.3%, and the Nasdaq declined 2.4% at the announcement.
Bond yields spiked higher at the news, with the 10-year yield rising to 4.093% on Wednesday while the 30-year Treasury yield climbed to 4.18%. As for the futures market, Dow Jones futures fell 0.4%, S&P 500 futures lost 0.6%, and Nasdaq Futures fell 0.9%.
The bottom line
This is now the second significant downgrade from a credit rating agency for the U.S. government, which will hopefully send a warning that the rest of the world doesn’t tolerate the kind of political tomfoolery around the debt-ceiling. Despite the temporary dip, the stock market will undoubtedly march back upwards as it continues its bull run.
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