Treasury Secretary Janet Yellen on Wednesday criticized the recent decision by Fitch Ratings to downgrade the U.S. long-term credit rating, which dealt a major blow to the world’s largest economy.
“Fitch’s decision is puzzling in light of the economic strength we see in the United States,” Ms. Yellen said during a speech at an IRS facility in McLean, Virginia.
“I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.”
Ms. Yellen’s remarks came a day after Fitch Ratings downgraded the Long-Term Foreign-Currency Issuer Default Rating for the United States from AAA to AA+.
The rating cut means that U.S. government bonds are now a riskier investment than they were previously, raising the cost of government borrowing.
According to Ms. Yellen, the credit rating agency’s “flawed assessment” is based on old data and fails to incorporate changes in governance and other indicators since President Joe Biden took office.
The credit rating agency highlighted “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” over the past two decades as reasons for the downgrade.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch stated. “In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”
Ms. Yellen, however, said the U.S. economy has made a “historic recovery” from the pandemic crisis. She went on to brag about record job creation and a drop in inflation over the last year.
“At the end of the day,” Ms. Yellen said, the downgrade decision by Fitch “does not change what all of us already know: that Treasury securities remain the world’s preeminent safe and liquid asset and that the American economy is fundamentally strong.”
The United States lost its top sovereign credit rating, falling behind Germany, Denmark, the Netherlands, Sweden, Norway, Switzerland, Singapore, Luxembourg, and Australia.
Biden Officials Blame Trump
Since this is the first time a major ratings agency has downgraded the United States in more than a decade, the move has caused quite a stir.
“We strongly disagree with this decision,” White House press secretary Karine Jean-Pierre said in a statement.
“The rating model used by Fitch declined under President Trump and then improved under President Biden, and it defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” she added.
Biden administration officials blamed former President Donald Trump for the rating downgrade.
According to White House economic adviser Jared Bernstein, U.S. creditworthiness deteriorated substantially under President Trump for valid reasons but began to recover under Mr. Biden.
“I do think the timing is just very strange,” Bernstein said on Wednesday in an interview with CNBC.
“Fitch seems to be punishing the cleanup crew when the guy who wrecked the room is long gone.”
According to budget hawks, the downgrade serves as a wake-up call for the United States to fix its debt problem.
“Today’s downgrade should be a wake-up call—we need to get our country’s fiscal and political house in order,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote in a statement.
“The United States economy remains strong, but we are on an unsustainable trajectory.”