The US was stripped of its top-tier sovereign credit grade by Fitch Ratings, which criticised the country’s ballooning fiscal deficits and an “erosion of governance” that has led to repeated debt limit clashes over the past two decades.
The agency cut the US one level from AAA to AA+, echoing a move made more than a decade ago by S&P Global Ratings.
Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, Fitch said, while medium-term challenges related to rising entitlement costs remain largely unaddressed.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades,” Fitch said.
Treasury Secretary Janet Yellen quickly responded to the downgrade, calling it “arbitrary” and “outdated.”
Treasuries edged higher in early Asia trading after the Fitch announcement on modest demand for haven assets.
“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Ms Yellen said.
Fitch had said that it was weighing a cut to the country’s credit grade in May, when Democrat and Republican politicians were at odds over raising the borrowing limit and the US Treasury was weeks away from running out of cash.
While that crisis was averted, Fitch nonetheless said that the repeated debt-limit clashes and 11th-hour resolutions have eroded confidence in the US's fiscal management.
Tuesday’s statement also attributed the downgrade to the country’s rapidly swelling debt burden, which it forecasts to reach 118 per cent of gross domestic product by 2025, more than two-and-a-half times higher than the AAA median of 39.3 per cent.
The rating agency projects the debt-to-GDP ratio to rise even further in the longer-term, increasing America’s vulnerability to economic shocks, the report said.
Several economic commentators were surprised by the news.
Mohamed El Erian, the chief economic adviser at Allianz and a Bloomberg Opinion columnist, said on social media he was puzzled by “many aspects” of the announcement, including the timing.
“The United States faces serious long-run fiscal challenges,” said former Treasury Secretary Larry Summers in a social media posting.
“But the decision of a credit-rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept.”
Treasuries react
Yields on two-year Treasuries fell one basis point to 4.89 per cent in Asia trading, while those on 10-year US bonds were little changed around 4.02 per cent. The dollar dipped against the euro and yen.
S&P’s downgrade of the US credit rating in 2011 triggered a sell-off in risk assets like equities around the world, but ironically boosted Treasuries as investors sought havens.
“I suspect the market will be in two minds about it – at face value, it’s a black mark against the US’s reputation and standing, but equally, if it fuels market nervousness and a risk-off move, it could easily see safe haven buying of US Treasuries and the dollar,” said David Croy, strategist at Australia & New Zealand Banking Group in Wellington.
“It’s finely balanced.”
The yield on 30-year US debt rose to the highest in almost nine months on Tuesday as the Treasury Department prepared to ramp up issuance of longer-dated securities to fund its widening budget deficit.
Washington responds
The move by Fitch now gives the US two AA+ ratings. That could raise a problem for funds or index trackers with a AAA only mandate, opening up the possibility of forced sales for compliance reasons.
Moody’s Investors Service still rates the US sovereign Aaa, its top grade.
Democrats in Congress seized on the downgrade to blame Republicans for holding up the US debt ceiling increase earlier this year.
“This is the result of Republicans’ manufactured default crisis. They’ve repeatedly put the full faith and credit of our nation on the line, and now, they are responsible for the second downgrade in our credit rating,” Democrats on the ways and means committee said in a statement.
House Republican campaign spokesman Jack Pandol said on X, formerly Twitter, that the cause of downgrade was “Bidenomics”.
Trump v Khan
2016: Feud begins after Khan criticised Trump’s proposed Muslim travel ban to US
2017: Trump criticises Khan’s ‘no reason to be alarmed’ response to London Bridge terror attacks
2019: Trump calls Khan a “stone cold loser” before first state visit
2019: Trump tweets about “Khan’s Londonistan”, calling him “a national disgrace”
2022: Khan’s office attributes rise in Islamophobic abuse against the major to hostility stoked during Trump’s presidency
July 2025 During a golfing trip to Scotland, Trump calls Khan “a nasty person”
Sept 2025 Trump blames Khan for London’s “stabbings and the dirt and the filth”.
Dec 2025 Trump suggests migrants got Khan elected, calls him a “horrible, vicious, disgusting mayor”
The Equaliser 2
Director Antoine Fuqua
Starring: Denzel Washington, Bill Pullman, Melissa Leo, Ashton Sanders
Three stars
Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
Who has been sanctioned?
Daniella Weiss and Nachala
Described as 'the grandmother of the settler movement', she has encouraged the expansion of settlements for decades. The 79 year old leads radical settler movement Nachala, whose aim is for Israel to annex Gaza and the occupied West Bank, where it helps settlers built outposts.
Harel Libi & Libi Construction and Infrastructure
Libi has been involved in threatening and perpetuating acts of aggression and violence against Palestinians. His firm has provided logistical and financial support for the establishment of illegal outposts.
Zohar Sabah
Runs a settler outpost named Zohar’s Farm and has previously faced charges of violence against Palestinians. He was indicted by Israel’s State Attorney’s Office in September for allegedly participating in a violent attack against Palestinians and activists in the West Bank village of Muarrajat.
Coco’s Farm and Neria’s Farm
These are illegal outposts in the West Bank, which are at the vanguard of the settler movement. According to the UK, they are associated with people who have been involved in enabling, inciting, promoting or providing support for activities that amount to “serious abuse”.
Tips for newlyweds to better manage finances
All couples are unique and have to create a financial blueprint that is most suitable for their relationship, says Vijay Valecha, chief investment officer at Century Financial. He offers his top five tips for couples to better manage their finances.
Discuss your assets and debts: When married, it’s important to understand each other’s personal financial situation. It’s necessary to know upfront what each party brings to the table, as debts and assets affect spending habits and joint loan qualifications. Discussing all aspects of their finances as a couple prevents anyone from being blindsided later.
Decide on the financial/saving goals: Spouses should independently list their top goals and share their lists with one another to shape a joint plan. Writing down clear goals will help them determine how much to save each month, how much to put aside for short-term goals, and how they will reach their long-term financial goals.
Set a budget: A budget can keep the couple be mindful of their income and expenses. With a monthly budget, couples will know exactly how much they can spend in a category each month, how much they have to work with and what spending areas need to be evaluated.
Decide who manages what: When it comes to handling finances, it’s a good idea to decide who manages what. For example, one person might take on the day-to-day bills, while the other tackles long-term investments and retirement plans.
Money date nights: Talking about money should be a healthy, ongoing conversation and couples should not wait for something to go wrong. They should set time aside every month to talk about future financial decisions and see the progress they’ve made together towards accomplishing their goals.
