MCLEAN, Virginia: US Treasury Secretary Janet Yellen on Wednesday (Aug 2) voiced more complaints about Fitch Ratings’ downgrade of the main US credit rating, calling it “entirely unwarranted” because it ignored improvements in governance metrics during the Biden administration and the country’s economic strength.
Speaking at an Internal Revenue Service (IRS) contractor office near Washington, Yellen said the rating agency’s announcement on Tuesday failed to take into account a resilient US economy, with low unemployment, falling inflation, continued growth and strong innovation.
“Fitch’s decision is puzzling in light of the economic strength we see in the United States,” Yellen said. “I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.”
She said Fitch’s “flawed assessment” was based on outdated data and failed to reflect improvements in US governance indicators over the past two and a half years of President Joe Biden’s administration.
“At the end of the day, Fitch’s decision does not change what all of us already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Yellen added.
Fitch had cited a deterioration in US governance that started during the prior Trump administration in making its decision, according to Biden administration officials.
A July 2022 Fitch report revising the US credit outlook to “stable” from “negative” said former president Donald Trump’s failure to concede the 2020 election had “no recent parallel in other very highly rated sovereigns”, while noting improved debt expectations. It showed a slight improvement in the ratings model score in 2022 during Biden’s term.
White House Council of Economic Advisers chair Jared Bernstein joined the chorus of irate Biden administration officials, calling the move “bizarre” and “arbitrary”.
“I do think the timing is just very strange ... Fitch seems to be punishing the cleanup crew when the guy who wrecked the room is long gone,” he told CNBC, referring to Trump.
He added that the Biden administration’s job was “to make sure that we have a sound, growing macro economy that’s reaching American households that’s at the core of Bidenomics”.
Richard Francis, a senior director at Fitch, told Reuters on Wednesday that the US governance deterioration was partly reflected in the Jan 6, 2021, insurrection at the US Capitol as Trump sought to overturn the 2020 election results.
But Francis said the deterioration also was reflected in this year’s debt ceiling fight, and the increasing polarisation of both major political parties, making compromise harder to achieve.
In its decision to cut the US rating by one notch to AA+ from AAA, Fitch also cited a fiscal deterioration over the next three years that will increase deficits and repeated down-to-the wire debt ceiling negotiations that threaten the US government's ability to pay its bills.
Yellen said that fiscal responsibility was a priority for her and Biden, and the June debt limit deal he reached with Republicans included more than US$1 trillion in deficit reduction over 10 years.
Biden's proposed 2024 budget, which includes substantial tax increases on wealthy individuals and corporations, would also reduce deficits by US$2.6 trillion over the next 10 years.
Yellen said investments to modernise the IRS and improve tax enforcement, funded by US$60 billion in new resources provided by last year’s Inflation Reduction Act, would cut deficits by “hundreds of billions of dollars” over a decade.
She visited the office of 22nd Century Technologies in McLean, Virginia, to highlight a pledge to allow taxpayers to submit all documents and correspondence digitally during the 2024 tax season, which would eliminate the manual processing of up to 125 million documents annually.
The company has a contract to develop scanning technology to convert paper documents so that they can be digitally processed. – Reuters