FX: The US rating has been downgraded again! Wall Street and Washington "quarreled"
Fitch Ratings downgraded America's top AAA credit rating to AA +.The reason is the ballooning US fiscal deficit and poor governance.This has led to frequent debt ceiling conflicts over the past two decades.
According to Fitch,Tax cuts, new spending measures, and multiple economic shocks have inflated the U.S. budget deficitMedium-term challenges related to the rising cost of entitlement spending remain largely unresolved, the rating agency said in a statement.
"The US downgrade reflects the expected fiscal deterioration over the next three years, the high and growing overall government debt burden, and the decline in governance over the past two decades compared to other'AA 'and'AAA' rated countries."
Fitch had warned back in May that it was considering downgrading America's credit rating, when Democratic and Republican lawmakers were divided over raising the debt ceiling and the Treasury was just weeks away from running out of cash.
Although the crisis was eventually averted, Fitch said,Recurrent debt ceiling conflicts and last-minute resolutions have undermined confidence in the country's fiscal management.
Tuesday's statement also attributed the rating downgrade toAmerica's burgeoning debt burden, projected to reach 118 per cent of GDP by 2025, is more than 2.5 times higher than the median of 39.3 per cent for "triple A" rated countries.The report says the rating firm expects that in the long run,The debt-to-GDP ratio will rise further, increasing America's vulnerability to future economic shocks.
The impact of a downgrade on the market: US debt, the US dollar
Fitch's decision means that two of the three major credit rating firms rated U.S. debt below the top tier, with only Moody's maintaining it at AAA and stable. In other words,On average, the United States is now rated below AAA.
Wendy Edelberg, a senior fellow at the Brookings Institution, said:If investors or major funds have regulations on the average rating of investment targets,This could have some impact.Funds may be forced to adjust their portfolios accordingly.But she added,
Even so,Given that the US debt rating remains high, the impact is likely to be small.
David Croy, a strategist at ANZ, said the market would have a two-fold view of a U.S. credit rating downgrade.
Treasuries play an indispensable role in global markets and are seen as a safe-haven security that offers virtually risk-free returns, as well as an important benchmark for returns on stocks and other bonds, as investors typically demand higher yields on any other securities they buy.
Luke Tilley, chief economist at Wilmington Trust, said taking action at a single rating agency,It is unlikely that Wall Street and investors will suddenly abandon their reliance on Treasuries as a safe-haven benchmark.But he said moves by institutions such as Fitch would gradually reduce global financial marekts confidence in the credibility of the U.S. government.
Commonwealth Bank of Australia currency strategist Carol Kong said that if the market believes that a downgrade will harm the dollar's reserve currency status, and the market sells its holdings of U.S. Treasuries,Then the dollar could weaken further in the coming trading days.
"But I don't expect the dollar to suffer any losses because credit ratings are generally not the main medium-term driver of currencies."
As the US Treasury prepares to ramp up its issuance of long-term Treasury bonds to fund the widening budget deficit,The yield on 30-year Treasury bonds rose to its highest level in nearly nine months on Tuesday.
The downgrade of the US credit rating by S & P in 2011 triggered a global sell-off in risky assets such as equities, but ironically,Treasury prices rose instead as investors sought safe haven assets.
Washington's reaction
US Treasury Secretary Janet Yellen responded quickly, saying in a statement:
"Fitch's decision does not change what Americans, investors and people around the world already know: Treasuries remain the world's most important safe and liquid asset, and the U.S. economy is fundamentally strong."
Maya MacGuineas, chairwoman of the Committee for a Responsible Federal Budget, a US budget watchdog, said:Today's downgrade should be a wake-up call.Whether or not people agree with Fitch's decision to downgrade the US government,The US is clearly on an unsustainable fiscal path."We need to do better."
In addition, Fitch's downgrade of the U.S. rating has immediately become a hot topic in Washington, with Democratic lawmakers and the White House placing the blame on Republicans, as Senate Majority Leader Chuck Schumer has said.
"Fitch's downgrade demonstrates the negative consequences for the nation of the reckless brinkmanship and defiance of default by House Republicans."
FXTForex believes that on the surface, this is a stain on the reputation and status of the United States, but if it exacerbates market tensions and safe-haven demand, funds are prone to flock to safe-haven assets such as U.S. bonds and the U.S. dollar.
Republicans said the downgrade was just another example of Mr. Biden mishandling the economy, blaming "Bidenomics".
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