Fitch downgrades United States credit rating to AA+

Fitch has the credit score of the United States lowered from 'AAA' to 'AA+'. This decision is based on the expected deterioration of public finances over the next three years, a high and growing public debt, and declining governance compared to countries that have an 'AA' and 'AAA' rating. The lack of a medium-term fiscal framework, a recurring political standoff over the debt ceiling, and the slow handling of rising Social Security and Medicare costs due to the aging population have all contributed to increasing the national debt over the past decade.

In 2011, S&P downgraded its rating for the United States from 'AAA' to 'AA+'.

Fitch expects the United States' budget deficit to rise to 6.3% of GDP in 2023, with a further increase to 6.9% in 2025. This is due to weak economic growth, higher interest charges, and broader deficits in state and local governments. As a result, debt as a percentage of GDP will increase to 118.4% in 2025, which is more than twice higher than the average of countries with an 'AA' and 'AAA' credit rating.

High interest costs and an ageing population

Fitch also emphasizes that there are unmet medium-term challenges such as rising interest costs and spending on the aging population, which make the U.S. fiscal position more vulnerable to future economic shocks. In addition, the economy is predicted to enter a mild recession in the fourth quarter of 2023 and the first quarter of 2024, and the Federal Reserve will raise interest rates further.

Despite these concerns, according to the rating agency , the U.S. also has some strengths such as a large, advanced and diverse economy, supported by a dynamic business environment, and the U.S. dollar's status as the world's most important reserve currency, which gives the government extraordinary financing flexibility.

An edited version of this article originally appeared on Geotrendlines.