Sunday, October 1, 2023

The Fitch agency deprives the United States of its precious triple A

This seems like a snub. The financial rating agency Fitch announced on Tuesday a downgrade of the United States’ credit rating. It goes from AAA to AA+, with only the “stable” outlook remaining. “Repeated political impasses over the debt ceiling and last-minute resolutions have eroded confidence in budget management,” Fitch Ratings justifies. “In addition, the government does not have a medium-term fiscal framework, unlike most of its peers, and its budget process is complex. » The agency put the US banknote “under surveillance” at the end of May.

The White House quickly responded, stating that it “strongly disapproves” of Fitch’s decision. “The rating model used by Fitch declined under President Trump and then improved under President Biden, defying reality by downgrading the United States at a time when President Biden has ensured the fastest recovery and strong of all the main economies of the world.” the spokesperson responded in a press release.

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The announcement hinders the communication of the government, which has been focused for weeks on the promotion of “Bidenomics”, Joe Biden’s economic policy composed of enormous financial incentives to reindustrialize the country and commit it to the energy transition.

“The United States has a long-term budget problem, because we have effective blocking coalitions against spending cuts and tax increases. But what makes this problem seem worse this year than it did a year ago? “, Nobel Prize winner Paul Krugman also questioned on Twitter, calling Fitch’s decision “strange.”

“An attention call”

The agency cites a clear deterioration in public finances: the budget deficit should reach 6.3% of GDP this year, compared to 3.7% last year, it calculates, due to “the cyclical reduction in federal revenues, new spending initiatives and higher interest rates. And the hard-negotiated agreement with Republicans to avoid a default in June was more political than budgetary.

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“Today’s reduction should be a wake-up call: we need to put our country’s finances and politics in order. The American economy remains strong, but we are on an unsustainable trajectory,” responded Maya MacGuineas, president of the CRFB, a think tank dedicated to public finances.

The debt wall, which already represents the entire GDP, is expected to rise further as a result of rising interest rates. But the fundamental debate in Congress about a trajectory of reducing public spending has so far barely mobilized, either in the Democratic ranks or on the right.

Towards a slight recession

The last rating crisis in the United States dates back to 2011, when the S&P agency deprived the country of its triple A, also lowering the rating by one notch. A level maintained since then. Only Moody’s still grants its triple A rating to the United States.

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Despite better-than-expected growth in the second quarter, Fitch forecasts a slight recession at the end of the year and highlights risks for the coming years. Elle prévoit a slowdown of the croissance annuelle du GDP réel des Etats-Unis « à 1.2% this year, against 2.1% in 2022, and a global croissance of seulement 0.5% in 2024 », indicate-t- she. “The labor market participation rate remains lower (by 1 point) than pre-pandemic levels, which could have a negative impact on potential growth in the medium term,” she also notes.

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