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Fitch Ratings has downgraded the US sovereign credit grade from AAA to AA+ due to concerns over the country's growing fiscal deficits and an "erosion of governance" that has led to repeated debt limit clashes over the past two decades. This downgrade echoes a similar move made by S&P Global Ratings more than a decade ago.
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Fitch attributes the increasing budget deficits to tax cuts, new spending initiatives, and multiple economic shocks, while also highlighting the unaddressed challenges related to rising entitlement costs in the medium term.
Why it matters
As one of the major credit rating agencies, Fitch's decision to downgrade the US credit rating could lead to increased borrowing costs for the country, affecting its ability to raise funds and potentially influencing investors' confidence. Moreover, it emphasizes the importance of addressing fiscal deficits and governance issues to maintain a strong credit rating and economic stability.
