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U.S. loses its top AAA rating from Fitch over worries about the nation's finances


How dependable is the U.S. government at paying its debts? One of the nation's big credit watchdogs says not dependable enough.


Yeah. Yesterday, Fitch Ratings stripped the federal government of its triple-A bond rating, citing big government deficits and a steady deterioration in governance over the past two decades. The downgrade comes just two months after leaders narrowly avoided a potentially disastrous default on the federal debt.

FADEL: NPR's Scott Horsley joins us now for analysis. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Leila.

FADEL: Good morning. So in what way has the U.S. government become fiscally unreliable, according to this ratings agency?

HORSLEY: Well, the government continues to run up big deficits. That's adding to a debt that already tops $32 trillion. And Fitch says Washington has no real plan for fixing the situation. The deal between the Biden administration and House Republicans to suspend the debt limit a couple months ago barely scratches the surface. It does limit some spending, but only in a small fraction of the overall federal budget. And it actually worsens the revenue outlook by cutting money for the IRS. It does nothing to address the long-term challenges of funding programs like Social Security and Medicare for an aging population.

And Fitch points to a pretty toxic political environment that's seen repeated brinkmanship over the simple question of whether the government's going to pay its bills. You know, it's a coincidence. The credit downgrade was announced on the same day that the former president was indicted for allegedly trying to undermine the peaceful transfer of power. But given the extreme polarization and paralysis here in Washington, it's no wonder some folks may think twice about whether the government can be trusted to pay its debts.

FADEL: What's the Biden administration saying?

HORSLEY: Treasury Secretary Janet Yellen issued a statement saying she strongly disagrees with Fitch's move. She called it arbitrary and says it's based on outdated information. Yellen notes the U.S. economy has bounced back more quickly than most other countries from the pandemic recession. Unemployment's near a 50-year low. Inflation's come down sharply over the last year. GDP is actually growing faster than a lot of forecasters expected. And all of that is true. Fitch actually acknowledges that the U.S. has a vibrant, diversified economy and a dollar that's the envy of the world. What the rating agency is concerned about, though, is policymaking here in Washington, whether we're talking about GOP tax cuts or Democratic spending programs, and the apparent unwillingness of both parties to grapple with the long-term challenges of bankrolling entitlement programs.

FADEL: What does this practically mean, though, Scott? How does this downgrade affect the country's finances?

HORSLEY: The practical effects may be pretty limited. The dollar did slip a bit overnight. Stock futures were down, but not dramatically. As the Treasury secretary says, plenty of people are still willing to lend the government money even if they are demanding higher interest rates now than they used to. After the last big debt limit showdown in 2011, another credit rating agency, S&P, also took away the government's triple-A rating. There was some short-term fallout in the stock market, but it didn't really impede the government's ability to borrow money. The cost of borrowing is going up, though. In the first nine months of this fiscal year, the government spent $652 billion just on interest payments. That leaves less money for everything else the government wants to do.

FADEL: And what would it take to restore the government's triple-A bond rating?

HORSLEY: Well, Fitch says it would consider raising the bond rating again if the government were to grapple seriously with some of its long-term fiscal challenges. That might mean adjusting outlays, raising revenues or some combination of the two. And Fitch also says it would like to see a turnaround in the toxic governing environment.

FADEL: NPR's Scott Horsley. Thanks, Scott.

HORSLEY: You're welcome.

(SOUNDBITE OF MR MUDDY'S "CAPE JUDGE") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Leila Fadel is a national correspondent for NPR based in Los Angeles, covering issues of culture, diversity, and race.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.

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