For the second time since 2011, a major U.S. credit rating agency has downgraded its credit rating for the U.S. government from AAA to AA+. In a press release Tuesday, Fitch Ratings stated:
The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.
Fitch Ratings also cited the “…limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population…” as a reason for the downgrade. Fitch said it expects “…the general government (GG) deficit to rise to 6.3% of GDP in 2023, from 3.7% in 2022, reflecting cyclically weaker federal revenues, new spending initiatives and a higher interest burden.”
Most troubling, the ratings firm projected the U.S. economy would slip into a recession in fourth quarter of 2023 and the first quarter of 2024, citing a slowing consumption, lagging GDP growth, and a sluggish labor participation rate.
The Fitch downgrade alongside its warning of economic recession is a blow to President Joe Biden’s re-election campaign which has recently rolled out a new messaging campaign touting the success of “Bidenomics.” A recession hitting the U.S. economy in 2024 could tilt the electoral map in favor of Republicans who hold a narrow majority in the House of Representatives and are seeking to regain control of the Senate and White House.
The U.S. government’s debt rating was downgraded from AAA to AA+ by the credit rating agency Standard & Poor’s in 2011.
