- Wednesday, October 16, 2024
Fitch Ratings, a renowned ratings agency, has recently downgraded the United States' long-term foreign-currency default rating from AAA to AA+. This downgrade is primarily driven by several factors, including the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and a decline in governance compared to countries rated as 'AA' and 'AAA' over the past two decades.
One of the contributing factors highlighted by Fitch Ratings is the recurring debt limit standoffs and last-minute resolutions. These events have negatively impacted the nation's credibility and financial stability. However, Treasury Secretary Janet Yellen has expressed her disagreement with this decision, emphasizing that Fitch Ratings' analysis is based on outdated data and seems arbitrary.
Yellen also highlighted that significant progress has been made during this administration regarding governance and fiscal responsibility. Bipartisan legislation has been passed to address the debt limit, invest in infrastructure, and enhance America's competitiveness.
In contrast to its peers, Fitch Ratings pointed out that the federal government lacks a medium-term fiscal framework and has a complex budgeting process. These factors, combined with economic shocks, tax cuts, and new spending initiatives, have resulted in successive debt increases over the past decade.
Furthermore, Fitch Ratings raised concerns about the limited progress made in addressing challenges related to rising Social Security and Medicare costs due to an aging population.
Secretary Yellen reassured that President Biden's administration is fully committed to ensuring fiscal sustainability. Recent debt limit legislation has already included over $1 trillion in deficit reduction, significantly improving the fiscal trajectory. Looking ahead, President Biden has proposed a budget that aims to reduce the deficit by $2.6 trillion over the next decade through a balanced approach that prioritizes long-term investments.
Despite the downgrade, both Yellen and President Biden remain determined to establish a strong fiscal foundation for the future, supporting sustainable economic growth and prosperity.
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