By Tom Ozimek
Sen. Joe Manchin (D-W.Va.) said that the loss of America’s top-tier credit rating represents a “historic” failure on the part of President Joe Biden and congressional leaders on both sides of the aisle.
Mr. Manchin’s searing criticism came two days 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.
“The downgrading of America’s credit rating by Fitch represents a historic failure of leadership by both political parties and the Executive branch,” Mr. Manchin said in an Aug. 3 statement.
With the loss of its top sovereign credit rating, the United States has fallen behind Germany, Denmark, the Netherlands, Sweden, Norway, Switzerland, Singapore, Luxembourg, and Australia.
‘Decline in Governance’
In justifying its downgrade decision, Fitch said there has been a steady deterioration in governance standards in the United States over the past two decades, including on issues of government spending and debt servicing.
“The credit agency specifically cited the decline in governance, erosion of cooperation in the federal government and ballooning national debt when making the determination to lower our credit rating,” Mr. Manchin said.
In recent months, a bitter partisan dispute over spending levels on Capitol Hill led to yet another down-to-the-wire standoff on raising the debt ceiling. It ended at the beginning of June when Congress passed the Fiscal Responsibility Act of 2023, which the nonprofit Committee for a Responsible Federal Budget estimated would yield roughly $250 billion in direct savings.
Despite a collective sigh of relief on the part of many in the Beltway and on Wall Street that the measure passed—raising the debt cap and letting the government continue to rack up debt—current government funding is set to hit another hurdle soon.
In December 2022, Congress enacted an omnibus funding bill for fiscal year 2023, which ends on Sept. 30, the date on which current government funding is set to expire.
With talks on the next government funding bill for fiscal year 2024 expected to get underway soon, spending levels are once again poised to be a hot button issue, just like they were around the debt ceiling showdown. That standoff ended when Democrats agreed to Republican demands to impose spending caps, which include a roughly 9 percent reduction in nondefense spending in FY 2024 and FY 2025.
As the Sept. 30 deadline looms increasingly larger, Mr. Manchin spoke of the coming talks on a new government funding bill with some trepidation.
“Now, more than ever, it is time for elected leaders from both parties to work together and send a clear message to the world that we will take the necessary fiscal and budgetary steps to restore our credit rating and keep America’s economy strong for this generation and the next,” he said.
Mr. Manchin called the Fitch downgrade a “stark warning” that must not be ignored, while urging his congressional colleagues to act now and address the national debt and fully fund the government.
“Every American will suffer if Washington politics get in the way of long-term solutions that address these challenges,” he said.
In its downgrade decision, the credit rating agency also highlighted an expected fiscal deterioration over the next three years and a high and growing general government debt burden.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch stated.
Budget hawks largely echoed the tone of Mr. Manchin’s “stark warning.”
“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.
By contrast, the decision by Fitch to downgrade the United States was met with a flurry of critical takes on the part of the Biden administration, with the White House blaming Republican “extremism.”
“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,” White House press secretary Karine Jean-Pierre said in a statement.
“And it’s clear that extremism by Republican officials—from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy,” she added.
Elsewhere, Treasury Secretary Janet Yellen on Wednesday criticized the Fitch downgrade, saying she found the decision baffling in light of the “strength” of the U.S. economy, which has been been a mixed picture as recessionary warning signs have been flashing red.
“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.”
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.
There have been growing signs that the U.S. economy is in choppy waters and en route to more turbulence.
The latest recession watch data from The Conference Board—a compilation of forward-looking economic indicators called the Leading Economic Index (LEI)—fell again in June, extending its decline for the 15th consecutive month, the longest streak of declines since the 2007 to 2009 financial crisis.
“June’s data suggests economic activity will continue to decelerate in the months ahead. We forecast that the US economy is likely to be in recession from Q3 2023 to Q1 2024,” Justyna Zabinska-La Monica, a senior manager at The Conference Board, said in a statement.
Ms. Zabinska-La Monica blamed high inflation, tighter monetary policy, and more difficult credit conditions for putting a damper on the U.S. economy.
Emel Akan contributed to this report.