The rating was cut Tuesday one notch to AA+ from AAA, the highest possible rating. The new rating is still well into investment grade
The decision illustrates one way that growing political polarization and repeated Washington standoffs over spending and taxes could end up costing U.S. taxpayers. A lower credit rating, over time, could raise borrowing costs for the U.S. government.
At the same time, the huge size of the U.S. economy and historic stability of the federal government has kept its borrowing costs low. Global investors often flock to U.S. Treasury securities during periods of economic turmoil, lowering the interest rate paid by the U.S. government. Fitch cited the worsening political divisions around spending and tax policy as a key reason for its decision. It said U.S. governance has declined relative to other highly rated countries and it noted “repeated debt limit standoffs and last-minute resolutions.”
Yellen noted that the U.S. economy has rapidly recovered from the pandemic recession, with the unemployment rate near a half-century low and the economy expanding at a solid 2.4 per cent annual rate in the April-June quarter.
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