The president’s team has mobilized to counter the downgrade of Treasury debt by the Fitch Ratings agency, rushing to defend the story of an improving economic outlook.
When the Fitch Ratings agency announced this week that it was downgrading its long-term credit rating of the United States from AAA to AA+, Biden administration officials were ready — and angry.
Administration officials had been lobbying Fitch against the downgrade, which bewildered many economists but became immediate fodder for congressional Republicans and nonpartisan budget hawks to criticize the nation’s current fiscal direction.
When the ratings agency went through with the move anyway, President Biden’s team mobilized a rapid response, with economic heavyweights inside and outside the administration criticizing the timing and substance of the announcement.
The swift pushback was an effort to keep the downgrade from tarnishing Mr. Biden’s economic record amid a run of good news in key measures of the health of the American economy. And its aggressiveness reflected the critical importance of an improving economic outlook to Mr. Biden’s re-election campaign.
“What was important to the president was to point out not only was the Fitch decision arbitrary and outdated, but his administration has taken action to accomplish things that go in the exact opposite of the markdown,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in an interview, citing a bipartisan deal to raise the debt limit and modestly reduce federal spending.
“One reason why we punched back hard is because Fitch completely ignored accomplishments under this president, both on fiscal policy and on economic growth,” he said.
The White House got lucky in one respect. Coverage of the downgrade was immediately swamped by the third criminal indictment of former President Donald J. Trump.
It was an extension of a trend that has both helped and hurt Mr. Biden so far this year: Over the past six months, according to a Stanford University database, television networks have focused as much on news about his predecessor as on news about Mr. Biden.
Also helping Mr. Biden was that investors largely shrugged off the Fitch Ratings move. Researchers at Goldman Sachs wrote on Wednesday that “the downgrade should have little direct impact on financial markets.”
The downgrade came just after 5 p.m. on Tuesday. Fitch released a statement that attributed the move to “the expected fiscal deterioration over the next three years, a high and growing general government debt burden and the erosion of governance” in the United States over the past two decades.
Most notably, Fitch officials cited a series of high-stakes showdowns over raising the nation’s borrowing limit. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” they wrote.
The agency also expressed concerns over the rising costs of Medicare and Social Security benefits as more Americans retire, which are predicted to be the largest drivers of rising federal debt in the decade to come. Fitch predicted that the nation was headed for a mild recession by the end of the year. It was the second credit downgrade in American history, both directly linked to debt limit fights.
Moments after the release, Biden administration officials hit back.
Janet L. Yellen, the Treasury secretary, said in a statement that she strongly disagreed with a ratings change that she called “arbitrary and based on outdated data.”
Soon after, administration officials organized a call with reporters to criticize the move in more detail. They questioned why Fitch had not downgraded the rating when Mr. Trump was president, based on Fitch’s own ratings models, and why it had done so now, soon after a compromise with Republicans in Congress that had averted a fiscal crisis.
They rejected the agency’s recession prediction, citing strong recent economic data. They said the president was committed to further spending cuts — along with tax increases on corporations and the wealthy — to further reduce budget deficits in the future.
Officials also pointed reporters to a range of outside economists and analysts who criticized the decision.
Republicans quickly used the downgrade to criticize Mr. Biden.
“With annual deficits projected to double and interest costs expected to triple in just 10 years, our nation’s financial health is rapidly deteriorating and our debt trajectory is completely unsustainable,” said Representative Jodey C. Arrington of Texas, the chairman of the House Budget Committee. “This is a wake-up call to get our fiscal house in order before it’s too late.”
Fiscal hawks have been warning for more than a decade that America’s debt could grow unsustainable. Those calls grew as lawmakers borrowed trillions to help people, businesses and governments endure the Covid-19 pandemic. The cost of federal borrowing rose sharply over the past year as the Federal Reserve raised interest rates to combat inflation.
Source: Economy - nytimes.com
