For just the second time in history, the sovereign debt rating of the United States government was downgraded below AAA, the highest credit rating, and notched one level lower to AA+ by Fitch, matching the move made by Standard and Poors (S&P) in 2011. Citing repeated debt-limit battles, last-minute solutions and rapidly mounting debt burden, the rating agency lamented that eroding confidence in the country’s fiscal management and worsening estimates of prospective deficits have increased America’s vulnerability to future economic shocks. Specifically, Fitch stated that “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.” Regarding the mounting debt burden, Fitch highlighted that the United States is running far in excess of the AAA median for sovereigns of just over 39%, with forecasts revealing even further deterioration over the next few years. Indeed, the federal debt measured as a percentage of GDP has been on the rise for decades but picked up in earnest since the start of the Great Financial Crisis (GFC) in 2008, ballooning from 62.7% at the start of 2009, to a staggering 118.6% by the end of the first quarter of 2023.
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