(Reuters) – Ratings agency Fitch on Tuesday downgraded the United States’ long-term foreign currency ratings to AA+ from AAA, reflecting expected fiscal deterioration over the next three years as well as a high and growing general government debt burden.
The downgrade follows a debt ceiling agreement in June that came after months of political brinkmanship and ultimately lifted the government’s $31.4 trillion debt ceiling.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the rating agency said in a statement.
MARKET REACTION: The dollar moved lower against a basket of major currencies after the announcement.
S&P 500 futures were down 0.4%
COMMENTS:
KEITH LERNER, CO-CHIEF INVESTMENT OFFICER, TRUIST ADVISORY SERVICES, ATLANTA
“This was unexpected, kind of came from left field. As far as the market impact, it’s uncertain right now. The market is at a point where it’s somewhat vulnerable to bad news…”
“It’s come out of left field after the market has had a big move and the 10-year has had a big move, so this will be a test for the 10-year which at a critical level approaching 4.10 and the equity market which has had five straight months of gains.”
ERIC WINOGRAD, CHIEF ECONOMIST, ALLIANCEBERNSTEIN, NEW YORK
“Look, no one is seriously considering the prospect that the U.S. would ever fail to make a payment on its debt. There will continue to be demand for both long-term and short-term Treasuries, and I don’t see this downgrade as a significant signal of any trouble ahead.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“Economists look at the deficit and then assume your currency is going to weaken and soften as the deficit grows. That’s the textbook. As the deficit grows, your currency weakens, and Fitch is putting us in that textbook rationale. The irony is that the US dollar has, in many cases with the deficit, still risen against other currencies.”
“This is a warning. Economists say that if the U.S. doesn’t get its fiscal house in order, it’s currency is going to weaken, but the currency doesn’t weaken. And what Fitch is essentially saying is, it’s going to happen and the dollar is going to become a casualty.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET WEALTH ADVISORS IN PALM BEACH, FLORIDA
“I’m surprised, but I’m not surprised.”
“The thing about the sovereign debt is, it’s not just the ability to pay, it’s the willingness, and that is creating a problem. Every time we have a negotiation, it’s down to the wire, and it’s frustrating, and it creates unnecessary heartburn.”
“It’s really the just the troubled negotiations that take place every time we have a debt ceiling or budget negotiation. We’re preparing for another shutdown in the fall. We have to move beyond this.”
(Compiled by the Global Finance & Markets Breaking News team)
