Fitch downgrades US sovereign credit to AA+ amid soaring deficits & governance concerns. Impact on economy sparks debates. Treasury yields fluctuate.
News Update

Fitch Downgrades US Credit Rating Amid Soaring Deficits

In a major blow to the US economy, Fitch Ratings has stripped the nation of its prestigious AAA sovereign
credit grade. The credit rating agency cited alarming concerns over the country’s ballooning fiscal deficits
and an apparent “erosion of governance” that has led to repeated debt limit clashes over the past two
decades. Fitch’s decision to downgrade the US one level, from AAA to AA+, has sent shockwaves through
financial markets, igniting debates over the nation’s economic stability.

The downgrade comes as the US faces significant fiscal challenges resulting from a combination of tax
cuts, new spending initiatives, and multiple economic shocks. Fitch’s statement emphasized the urgency
to address medium-term challenges associated with rising entitlement costs that remain largely
unattended. The credit rating agency also projected the US debt burden to reach a staggering 118% of
the gross domestic product by 2025, making it over two-and-a-half times higher than the median for
‘AAA’-rated countries. This increasing vulnerability to future economic shocks has raised concerns among
investors and policymakers alike.

Treasury Secretary Janet Yellen swiftly responded to the downgrade, denouncing it as “arbitrary” and
“outdated.” She reaffirmed the strength of Treasury securities as the world’s preeminent safe and liquid
asset and emphasized the fundamental robustness of the American economy. Despite Yellen’s assurance,
market reactions have been closely monitored, with Treasury yields experiencing mild fluctuations in
early Asian trading. As the US grapples with the consequences of this downgrade, attention turns to
policymakers’ actions to restore confidence in the nation’s financial management and economic outlook.