On June 1, the whole world breathed a sigh of relief when members of the US Congress announced that they had reached an agreement in extremis to raise the debt ceiling, beyond the target date and amount, and thus avoid a default by the world's leading economy.

The consolation was short-lived. On August 2, Fitch Ratings, one of the world's most influential rating agencies, alongside Standard & Poor's and Moody's, decided to downgrade the United States, more than 11 years after its sister agency S&P. By lowering the rating by one notch, from AAA to AA+, the institution informed the world that it considered the creditworthiness of the country's debt issues to be lower than previously.

Debt problem

The agency justified its decision by deploring an erosion of governance, repeated crises over the debt ceiling and last-minute resolutions, castigating the irreconcilable political divisions.

To add insult to injury, and in response to the emotions of those in power, Fitch stated that it expects budgetary deterioration over the next 3 years, as well as a growing increase in the burden of public debt. It also explains that efforts to reduce pension and health insurance costs are insufficient.

Solid foundations?

Among the voices speaking out against this downgrade are those who point to the positives of the US economy: a labor market that remains strong, household consumption that is resilient despite inflation, GDP growth that has been revised upwards, and, despite a growing trade deficit, solid exports in certain segments, such as agricultural products and tech.

But there is still one hurdle to clear. Some observers believe that the downgrade increases the likelihood of a shutdown in October, i.e., a blockage of the 2024 budget vote by House Republicans. Ironically, this type of impasse is one of the reasons why Fitch initially downgraded the rating.

 

Drawing by Amandine Victor