Insights into Fitch Rating Downgrade of U.S. Debt
In the ever-changing landscape of global economics, recent headlines have been dominated by Fitch Ratings’ decision to downgrade the United States’ long-term credit rating from AAA to AA+. This move raised questions and concerns, prompting us to address the news and what it means for you.
In its statement, Fitch cited “expected fiscal deterioration over the next three years, erosion of governance, and a growing general debt burden” as reasons for the downgrade. These concerns are intimately tied to the projected fiscal challenges and governance issues in the United States. This has emerged as a byproduct of increased polarization in the domestic political landscape. Positive steps in Washington, such as eliminating the debt ceiling or encouraging bipartisan collaboration, could pave the way for a rating improvement.
It’s worth noting that Fitch is following through on a stance they took earlier. They set the United States Government’s credit rating outlook to negative in late May during the debt ceiling negotiations. The recent downgrade, while significant, doesn’t introduce new information that would warrant market panic.
Despite the downgrade, the United States continues to demonstrate a strong and resilient economy. Recent GDP growth and promising employment data underline this strength. Just last week, ADP reported 324,000 new jobs in July, and Bank of America has withdrawn its prediction of a recession next year. The prospect of a 2024 recession had been a significant factor in Fitch’s downgrade decision.
While the downgrade may lead to short-term market fluctuations, we urge you to remain focused on the big picture and your long-term financial objectives. Rest assured, our financial strategy is designed to withstand these short-term market shifts, and we are steadfast in our path forward.
Our Portfolio Analyst, Charles “Chad” NeSmith, CFA, CFP® recently shared his insights on Local 10 News (Miami/South Florida) providing more clarity on the topic. To gain a better understanding of the situation, you can watch the segment here: https://bit.ly/3DMKJMm