The US gets a rare credit-rating downgrade after the debt-ceiling drama
Worse than an Amex rejection… The US got its first downgrade from a major credit-rating agency in over a decade. Refresher: The gov’t has three big credit agencies: S&P, Moody’s, and Fitch. On Tuesday, Fitch made a surprise cut to the nation's credit rating from AAA (perfect) to AA+ (nearly perfect). Fitch pegged the downgrade to “debt-limit political standoffs” and “last-minute resolutions.” Like us regular folks, lower credit ratings can raise a country’s borrowing cost (the interest it owes on debt). Downgrades can make buying US debt (like: Treasury bonds) appear riskier.
Flashback: In May, Fitch cautioned of a possible US downgrade as lawmakers barely avoided a default at the 11th hour (by suspending the debt limit till 2025).
Backlash: Stock markets in the US, Asia, and Europe fell sharply on Wednesday after the downgrade.
When the straight-A student gets an A-minus… bummer. The US is known for consistently paying its debts on time, which is why its Treasury bonds have a “safe haven” reputation. But Fitch’s unease over America’s IOUs grew as the country’s debt ballooned to a record $31.4T and lawmakers argued over raising the ceiling (as they tend to do). In 2011, S&P became the first major rating agency to downgrade the US to AA+, citing political beef.
Trustworthiness is in the eye of the beholder… Fitch’s downgrade might reflect worries that the US has trouble agreeing on how to manage its ginormous debt. But not everyone agrees that debt drama = less creditworthiness. Treasury Secretary Janet Yellen said she “strongly” disagrees with the downgrade, and JPMorgan CEO Jamie Dimon said Fitch’s decision didn’t matter and was “ridiculous.”