After a meeting with senior Biden aides last month, analysts at Fitch Ratings sent the White House a draft of their assessment of the credit of the U.S. government. They requested corrections and notes, said a Treasury Department official to The Washington Post.
No mention was made about the downgrading of the United States government’s credit, and aides to Biden were hopeful that the successful resolution to the debt ceiling crisis earlier in the year would count in their favor, said the official.
When Fitch announced the downgrade Monday of the federal government, officials with the Biden administration were reportedly shocked by the decision.
In a Tuesday statement, Fitch pointed to both the U.S. political dysfunction and rising debt burden as reasons to question the government’s ability to pay its bills. Lowering the credit rating from AAA to AA+, Fitch cited “repeated debt limit standoffs and last-minute resolutions” as decision-making factors.
The debt ceiling determines the total amount the Treasury Department can borrow legally, and lifting it takes an act of Congress. U.S. debt bondholders could potentially not be repaid in full if lawmakers do not act in time.
Senior director at Fitch Ratings, Richard Francis, told Reuters that January 6 also played a role in the downgrade, as it highlights domestic fissures that could threaten lawmakers’ responses to financial crises.
“As we demonstrated with multiple statements and a thorough press call minutes after the announcement, we strongly disagreed with Fitch’s reasoning — and have since been echoed by a wide range of experts — but anticipated and were fully prepared for their decision,” said Andrew Bates, White House spokesperson in a statement.
Downgrade caught administration by surprise
Although the downgrade caught the administration by surprise, the ratings agency’s decision to make the move after the standoff in the spring reveals Washington’s perennial battles over rising levels of federal debt. According to warnings by Fitch, the national debt has skyrocketed and is showing no signs of slowing down. Additionally, Congress is unlikely to take action on it before the 2024 presidential election, said the agency.
Several experts say another threat to the fiscal health of the U.S. are long-term debts, which now total over $31 trillion, and it remains unclear how Congress intends to resolve funding crises for Medicare and Social Security, which are both facing automatic cuts in the next decade if nothing is done.
“We avoided a very bad situation with the debt ceiling, but we did not fundamentally address the problems with long-term spending and long-term revenue we have going forward,” said the senior vice president at the Bipartisan Policy Center, G. William Hoagland, to the Post. “We are going to have to deal with this again at some point.”