BusinessStocktake

US debt downgrade by Fitch is no cause for panic

Markets care about fiscal position of the US, not the opinion of the ratings agencies, says UBS economist

The offices of Fitch Ratings, one of three major credit rating agencies, in New York. Fitch downgraded the United States government credit rating from AAA to AA+. Photograph: Shutterstock
The offices of Fitch Ratings, one of three major credit rating agencies, in New York. Fitch downgraded the United States government credit rating from AAA to AA+. Photograph: Shutterstock

Stocks fell last week after Fitch downgraded US debt from AAA to AA+. Should investors care? Many prominent economists – treasury secretary Janet Yellen, Larry Summers, Paul Krugman, Allianz’s Mohamed El-Erian, among others – were scathing about Fitch’s decision.

However, the mood was more irritated than concerned. This year is not 2011, when S&P became the first credit ratings agency to strip the US of its AAA rating. Stocks promptly sank, but indices were tumbling even before S&P’s downgrade, during what was a turbulent time for the global economy. 2011 was a bearish environment for stocks; 2023 is anything but.

Global shares fall as investors digest downgrading of US credit ratingOpens in new window ]

Fitch, as Wells Fargo notes, is a “distant third” to the main ratings agencies, S&P and Moody’s. Nor was its move a big surprise, given it put US debt on negative watch status in May. As UBS economist Paul Donovan notes, markets care about the fiscal position of the US – they don’t care about the opinion of the ratings agencies. With stocks technically overbought, Fitch’s downgrade represented an excuse to sell, not a reason.

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column