Key Points
- Fitch announced on Tuesday that it was downgrading the US long-term foreign-currency issuer default rating from AAA to AA+.
- The US Credit Score was always on the balance of being revised downwards by Fitch following the 2023 debt ceiling crisis.
- US Stock futures fell sharply following the downgrade, starting a domino effect globally.
US Credit Score has been revised downwards by Fitch from AAA to AA+ following the highly contested debt ceiling crisis despite the US suspending it. Consequently, US, Europe, and Asian stocks are trading much lower on Wednesday.
Fitch downgrades US Credit Score from AAA to AA+
The US debt ceiling crisis threatened global economies as the world’s reserve currency issuer would have stepped into an immediate recession if it were to default on its debt. Analysts expected the US to lose at least 8 million jobs at such an event and be the first time in history that it went that route.
However, Speaker MC Carthy and President Joe Biden agreed to forge a deal that would see Congress suspend the debt ceiling till January 2025, when he gets out of office. This deal, however, did not solve anything, as government spending is still up despite inflation falling sharply to 3% in June.
Since the suspension of the debt ceiling temporarily shielded the US from an imminent downward revision of its debt default scores, government spending is up by over a trillion dollars. This has prompted Fitch to go ahead and lower the US Credit Score to AA+, a move that has yet to be well received by financial officials in the country, including Treasury Secretary Janet Yellen.
Following the news, US stock futures traded sharply lower, a fall of almost 300 points for the Dow Jones Industrial Average at Wednesday’s US market opening. Elsewhere, the Pan-European Stoxx 600 index dropped by 1.6%, with all sectors trading in the red. The Asia-Pacific region also plunged across the board at the same time.
Keep watching Fintech Express for more updates on this and other Fintech Related developments.