Fitch downgrades US credit rating: Here's what market experts, economists make of it

The United States of America's Long-Term Foreign-Currency Issuer Default Rating (IDR) was reduced to ‘AA+’ from ‘AAA’ by credit rating firm Fitch Ratings on Tuesday. A Stable Outlook was given in place of the Rating Watch Negative. The country ceiling has been affirmedat'AAA'.

According to a press release from the credit rating agency, the United States' credit rating has been downgraded, as a result of the expected fiscal decline over the following three years, the high and rising general government debt burden, and the erosion of governance compared to 'AA' and 'AAA' rated peers over the past 20 years, which has been demonstrated by numerous debt limit standoffs and last-minute agreements.

Following the downgrade, several experts shared their opinions on Twitter;

Ajay Bagga, Chairman,Elyments Platforms Pvt Ltd

"In 2011 , post a bitter debt ceiling standoff, S&P Global Ratings had cut US ratings by one notch.

Seeing the historical precedent and the singular positioning of the US economy and currency, we don't expect much of an impact of this move. The US was stripped of its top-tier sovereign credit grade by Fitch Ratings, due to the country’s ballooning fiscal deficits and an “erosion of governance” that’s led to repeated debt limit clashes over the past two decades. Fitch cut the US rating one level from AAA to AA+," said Ajay Bagga.

Also Read: Fitch Ratings downgrade: Could a cut in US rating mean higher inflows to India, other EMs?

Kirtan A Shah, Founder of FPA Edutech

"Fitch downgraded the US sovereign rating from AAA to AA+, with a stable outlook.

If I am not wrong, Fitch was the only one amongst the big rating agencies which was still at AAA for US, everyone else was already at AA+

Theoretically, US yields should rise, stocks should fall but impact if any will be short lived I think, let’s see," said Kirtan.

Gurmeet Chadha, Managing Partner & CIO at Compcircle

"The surprising part is not downgrade of US by Fitch…

The surprising part is that US pays $1 trillion only as interest on its Mountain of debt and yet its rating is AA+

Can’t sustain!

All the gyan of these rating agencies is reserved for emerging economies," said Gurmeet Chadha.

Also Read: Explained: What is a rating downgrade? And six key reasons why Fitch Ratings downgraded US

Mohamed A. El-Erian, President, Queens' College, Cambridge University Allianz, Gramercy advisor.

"In a strange move, Fitch just downgraded the US sovereign ratings from AAA to AA+, with a stable outlook.

The rating agency's justification is set out in this statement.

I am very puzzled by many aspects of this announcement, as well as by the timing.

I suspect I won't be the only one. The vast majority of economists and market analysts looking at this are likely to be equally perplexed by the reasons cited and the timing.

Overall, this announcement is much more likely to be dismissed than have a lasting disruptive impact on the US economy and markets," said Mohamed.

Justin Wolfers, Professor at U-M Economics and Ford School

"Fitch has downgraded the U.S. long-term credit rating from AAA to AA+.

And I’m mad as hell, because it’s the direct result of a multi-decade campaign of fiscal vandalism and political sabotage by Republicans, and the rest of us are left footing the bill," said Wolfers.

Also Read: Fitch cuts US credit rating to AA+ from AAA after debt limit standoffs; White House “strongly disagrees”

Madhavi Arora, Lead Economist, Emkay global

"Moody's still rates US as Aaa, it's highest sovereign rating. And S&P and Fitch now 1 notch lower than AAA.

If at all it leads to a reaction from mkts, it might be a risk off reaction leading to buying in USTs and a stronger dollar.

US corporate credit will suffer definitely but that means more demand for US treasuries for the same pool of investor money. That has been the immediate reaction post Fitch news release. But mostly on medium term no reaction," said Arora. 

Mukesh Kochar, National Head-Wealth, AUM Capital

“Fitch has signaled a possible downgrade in May before the debt ceiling agreement is reached. However, the timing might have surprised the market. Anything happening in the US always impacts the world market. However, we believe that the impact should be short-lived as one rating agency S&P has already downgraded the US to AA+ beforehand. 

This time the impact should be for a couple of days and the market may focus on other fundamental factors. Impact on the Indian market should also be short-lived and other factors such as earnings, crude prices and RBI policy. and fund flows will be the key to the market. Having said that market is heated the world over and may find a reason to correct it,” said Kochar.

Also Read: Fitch Ratings downgrade: Could a cut in US rating mean higher inflows to India, other EMs?