Fitch Ratings Monitors U.S. AAA Rating Amid Debt Crisis and Political Polarization

The rating agency Fitch kept the precious AAA rating of the United States under surveillance on Friday because of the debt crisis, and despite an agreement adopted in Congress on Thursday evening, deploring the “political polarization”.

“Although the resolution of the impasse on the American debt limit allows the government to meet its obligations”, Fitch maintains this monitoring, indicating, in a press release, to examine “all the implications of this latest episode of crisis and the prospects for medium-term budget and debt trajectories”.

Fitch, however, specifies that it “intends to lift the negative watch on the ‘AAA’ rating of the United States in the third quarter of 2023”, judging that “the coherence and credibility of policymaking, as well as the budgetary trajectories and of debt expected over the medium term will be key factors in our assessment”.

The administration of Democrat Joe Biden and the Republican opposition have led tense negotiations in recent weeks to raise the debt ceiling and thus allow the world’s largest economy to continue to pay salaries, pensions, health expenses, or even invoices, and to continue to borrow on the markets.

This made it possible to avoid a payment default in extremis, while the liquidities would only make it possible to hold out until June 5. The text will allow Washington to honor its payments until the beginning of 2025.

But for Fitch, these “repeated political clashes over the debt ceiling and last-minute suspensions (…) reduce confidence in fiscal and debt governance”.

The rating agency even deplores “a constant deterioration of governance over the past 15 years”.

She thus evokes “increased political polarization and partisanship, as evidenced by the disputed elections of 2020, repeated negotiations until the last minute on the debt ceiling and the inability to meet budgetary challenges”.

The US rating remains “supported by exceptional strengths, including the size of the economy, a high GDP per capita and a dynamic business environment”, nuances Fitch, while “the US dollar is the most important reserve currency in the world , giving the government unparalleled funding flexibility.

But, the agency further warns, “some of these strengths could be eroded over time by gaps in governance.”