Fitch Downgrades US Currency Rating

Fitch Ratings downgraded the U.S. government's long-term foreign-currency default rating from AAA to AA+. This change reflects concerns about the expected fiscal deterioration over the next three years, the increasing government debt burden, and governance issues compared to countries with higher ratings. Fitch also mentioned the repeated debt limit standoffs and last-minute resolutions as contributing factors.

The downgrade comes after more than two months since lawmakers in Washington reached a deal in late May to increase the country's borrowing limit. During that period, the risk of default was elevated, and Fitch placed the U.S. credit rating on its negative watch list, which remained even after the agreement was finalized.

The reason behind the firm's decision to formally downgrade on Tuesday was not immediately evident. It is surprising considering that at the beginning of the summer, a debt-ceiling deal was successfully passed with support from both parties. The deal lifted the debt limit for a two-year period and set caps on certain federal spending during that time. Additionally, there have been recent signs of the economy being more stable, with inflation showing signs of slowing down and growth surpassing initial expectations.

According to Treasury Secretary Janet Yellen, the decision to downgrade was arbitrary and relied on outdated data. Yellen highlighted that some of the factors Fitch considered for the downgrade, such as governance concerns, have improved under the current administration.

Many economists downplayed the possibility of significant economic and market repercussions. They pointed out that Fitch's influence is not as significant as that of Moody's or S&P.