FX: Yellen angrily criticized Fitch: The US economy is still strong! Downgrade "completely unfounded"

On Wednesday, U.S. Treasury Secretary Janet Yellen slammed Fitch Ratings' move to strip the United States of its top credit rating, saying its"Flawed", "completely unfounded"She said at an event:

"Fitch's decision is puzzling given the strength of the US economy. Over the long term, the US remains the world's largest, most dynamic and innovative economy and has the world's strongest financial system." 

Yellen's criticism echoes that of former Treasury Secretary Timothy Geithner almost exactly 12 years agoHe attacked S & P for "very poor judgment" after it downgraded the US from its top triple A rating.

At present, only Moody's of the three major rating agencies still maintains the United States at the top rating (Aaa).

Late on Tuesday, Fitch downgraded the United States to AA +, citing the erosion of U.S. financial governance, rising budget deficits, and its expectation that the nation's fiscal position will deteriorate over the next three years.

There was little immediate reaction from the Treasury market to Fitch's move, but prices fell after another better-than-expected "small non-farm" data, and traders accelerated their sell-off of Treasuries after the US announced plans to increase bond issuance beyond expectations. 

Analysts at Fitch focused on the US's medium-term fiscal challenges, saying they were "unresolved"In contrast, Yellen expressed optimism about the long-term debt situation, saying that inflation-adjusted interest costs are not at historic highs

Fitch's statement also said,The agency forecasts that the United States will enter a mild recession by the end of 2023This forecast is at odds with the assessments of some economists.FXTJust on Wednesday, Bank of America became the first major Wall Street bank to officially change its forecast that the United States would fall into recession. 

Ms Yellen said Fitch's decision "does not change what we all already know: Treasuries remain the safest and most liquid asset in the world and the US economy is fundamentally strong".

Earlier on Wednesday, one of Yellen's top lieutenants played down the risk that investors could be forced to sell Treasuries, and Josh Frost, Treasury's assistant secretary for financial marekting, told reporters on Wednesday:

"Just as S & P stripped the US of its triple A rating in 2011, Treasuries will not be affected. We did not see any evidence of this in 2011 and continue to see strong demand for Treasuries."