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- Fitch downgraded the US sovereign credit grade from the top-tier AAA rating to AA+.
- The agency said there's been "a steady deterioration in standards of governance over the last 20 years."
- Top economists and administration officials bashed Fitch's downgrade, calling it bizarre.
Top economists and administration officials are slamming Fitch Ratings' downgrade of the US long-term credit rating on Tuesday, at a time when the economy appears to be looking up.
Fitch downgraded the US sovereign credit grade from the top-tier AAA rating to AA+.
The agency said there's been "a steady deterioration in standards of governance over the last 20 years" and that "The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."
Treasury Secretary Janet Yellen led the charge in bashing Fitch's attack saying on Tuesday Fitch based its downgrade on "arbitrary and based on outdated data" from 2018 to 2020 — but the indicators have improved since then.
Even Nobel laureate and economist Paul Krugman was baffled about "that bizarre Fitch downgrade," as he posted on X.
"The biggest economic news over the past year has been America's remarkable success at getting inflation down without a recession, suggesting that we won't have to go through a prolonged slump in output and hence revenue," he wrote, adding that the long-term economic prospects have improved thanks immigration and a probable rise in productivity due to artificial intelligence.
—Paul Krugman (@paulkrugman) August 1, 2023
Top economist Mohamed El-Erian was equally perplexed, saying that the downgrade was a "strange move."
"I am very puzzled by many aspects of this announcement, as well as by the timing," wrote El-Erian, the chief economic adviser to German financial services giant Allianz. He was previously the CEO of US bond-fund giant Pimco.
—Mohamed A. El-Erian (@elerianm) August 1, 2023
"This announcement is more likely to be dismissed than have a lasting disruptive impact on the US economy and markets," El-Erian added.
Former Treasury Larry Summers slammed Fitch's downgrade on X, posting that the decision is "bizarre and inept" given that the American economy looks "stronger than expected."
Fitch flagged the risk of a US credit rating downgrade in May citing political "brinksmanship" in negotiations over raising the debt ceiling. But the US managed to avoid a default after President Biden signed a bill on June 3 to lift the country's debt ceiling.
US stock futures fell on Tuesday night after the downgrade. Dow Jones Industrial Average futures were down by 80 points, or 0.2% at 10.36 p.m. ET. S&P 500 and Nasdaq 100 futures dipped 0.3% and 0.4%, respectively.
Fitch Ratings did not respond to a request for comment from Insider sent outside regular business hours.