© Reuters. FILE PHOTO: A general view of the White House in Washington, U.S. June 12, 2023. REUTERS/Jonathan Ernst/File Photo
By David Lawder
WASHINGTON (Reuters) -Biden administration officials complained on Tuesday about ratings agency Fitch’s downgrade of the top U.S. government credit rating, saying the group used flawed methodology and ignored a resilient economy.
Leading the charge was U.S. Treasury Secretary Janet Yellen, who issued a statement declaring “I strongly disagree with Fitch Ratings’ decision” minutes after Fitch announced it had cut the rating on U.S. long-term debt to AA+ from AAA.
Fitch’s report cited “a steady deterioration in standards of governance over the last 20 years” and said “repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
The move comes two months after a bruising partisan fight over the federal debt ceiling, which was ultimately raised. It echoes a U.S. downgrade in 2011 by rival ratings agency Standard and Poor’s (NYSE:), days after a similar debt ceiling fight also threatened a U.S. default.
Biden administration officials told reporters governance issues cited by Fitch occurred during the administration of then-President Donald Trump, Joe Biden’s predecessor. Still, the agency kept the rating at AAA during those years, they said.
“This is a bizarre and baseless decision for Fitch to make now,” a senior Biden administration said, adding that U.S. governance, by Fitch’s measures, had improved during the Biden presidency.
“It simply defies common sense to take this downgrade as a result of what was really a mess caused by the last administration and reckless actions by congressional Republicans,” the official said.
The official added that it would be surprising to see a significant increase in federal borrowing costs as a result of the downgrade, based on the limited market reaction so far, and a decline in rates after the 2011 downgrade.
The move drew puzzled responses from economists and analysts, who questioned the timing and said it would likely have minimal effect on Treasury debt markets.
Biden’s re-election campaign spokesman Kevin Munoz and White House Press Secretary Karine Jean-Pierre blamed Trump and congressional Republicans for the downgrade.
“This Trump downgrade is a direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness that Americans continue to reject,” Munoz said, noting that Trump encouraged Republicans in Congress to “do the default” over the debt ceiling this year.
Yellen said the decision, which assumes a U.S. recession this year, ignores the economy’s resilience.
“Today, the unemployment rate is near historic lows, inflation has come down significantly since last summer, and last week’s GDP report shows that the U.S. economy continues to grow,” Yellen said.
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