Fitch says US fiscal metrics and governance spurred credit-rating cut

Weakening US fiscal metrics and governance, highlighted by political wrangling over the debt ceiling, were at the heart of the decision by Fitch Ratings to downgrade the nation’s credit on Tuesday, said Richard Francis, the company’s co-head of Americas sovereign ratings.

“We’re just saying, we don’t think the underlying fiscal story and the governance is compatible with AAA anymore,” Francis said Wednesday in an interview on Bloomberg Television. Francis cited “sustained deterioration over the years” in the nation’s debt position as a critical factor in the downgrade.

Fitch lowered the sovereign US credit rating by one level, to AA+ from AAA. It echoed a decision made in 2011 by S&P Global Ratings, which assesses the nation at the same level.

Francis said Fitch took into consideration the projected growth in US government debt as a percentage of gross domestic product. The company forecasts that ratio will reach 118% by 2025, more than two-and-a-half times the AAA median of 39.3%.

Also central to the downgrade was an “erosion of governance” within the federal government, Fitch said.

Speaking separately on CNBC Wednesday, Francis said that “constant political brinksmanship” over raising the debt ceiling, which roiled markets earlier this year before the standoff was resolved in June, is emblematic of such concerns. The Jan. 6, 2021, attack on the US Capitol by supporters of former President Donald Trump in a nationwide bid to overturn the results of the 2020 election was another factor, Francis said.

“The debt ceiling itself, suspending it or getting rid of it somehow, would help,” Francis told CNBC. “The idea that the United States reaches an X-date and all of a sudden can’t pay its bills, that’s not consistent with the AAA either.”

To be sure, Francis said on Bloomberg Television, the US dollar’s reserve currency status is “unparalleled.” Combined with deep and liquid Treasury markets, the government has “tremendous financing flexibility.”

Stocks retreated on Wednesday and Treasury yields climbed after hotter-than-expected job numbers and as the US Treasury boosted the size of its debt sales for the coming three months.