US Treasury Secretary Janet Yellen has voiced more objections to Fitch Ratings’ downgrade of the main United States credit rating, calling it “entirely unwarranted” because it ignored improvements in governance metrics during the Biden administration and the country’s economic strength.
Speaking at an Internal Revenue Service contractor office near Washington on Wednesday, Yellen said the rating agency’s downgrade the previous day failed to take into account a resilient US economy, with low unemployment, falling inflation, continued growth and strong innovation.
“Fitch’s decision is puzzling in light of the economic strength we see in the United States,” Yellen said. “I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.”
She said Fitch’s “flawed assessment” was based on outdated data and failed to reflect improvements in US governance indicators over the past two and a half years of President Joe Biden’s administration.
“At the end of the day,” Yellen said, “Fitch’s decision 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.”
Fitch had cited a deterioration in US governance that started during the administration of former President Donald Trump in making its decision, according to US Treasury officials.
Richard Francis, a senior director at Fitch, told Reuters news agency that the deterioration was partly reflected in the January 6, 2021 insurrection at the US Capitol building as Trump sought to overturn the 2020 election results.
But Francis said the deterioration also was reflected in this year’s debt ceiling fight, and the increasing polarisation of both major political parties, making compromise harder to achieve.
In its decision to cut the US rating by one notch to AA+ from AAA, Fitch also cited a fiscal deterioration over the next three years that will increase deficits and repeated down-to-the-wire debt ceiling negotiations that threaten the US government’s ability to pay its bills.
But Yellen said that fiscal responsibility was a priority for her and Biden, and the June debt limit deal he reached with Republicans included more than $1 trillion in deficit reduction over 10 years.
Biden’s proposed 2024 budget, which includes substantial tax hikes on wealthy individuals and corporations, would also reduce deficits by $2.6 trillion over the next 10 years.
Yellen said investments to modernise the IRS and improve tax enforcement, funded by $60bn in new resources provided by last year’s Inflation Reduction Act, would cut deficits by “hundreds of billions of dollars” over a decade.
