{"id":83,"date":"2025-05-23T14:40:16","date_gmt":"2025-05-23T18:40:16","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=83"},"modified":"2025-05-23T14:40:16","modified_gmt":"2025-05-23T18:40:16","slug":"why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><em>Originally written on 8\/15\/2023<\/em><\/p>\n<p><span data-contrast=\"auto\">Earlier this month, Fitch Rating Service downgraded the <\/span><a href=\"https:\/\/www.fitchratings.com\/research\/sovereigns\/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023#:~:text=Fitch%20Ratings%20%2D%20London%20%2D%2001%20Aug,been%20affirmed%20at%20'AAA'.\"><span data-contrast=\"none\">United States\u2019 Long-Term Foreign-Currency Issuer Default Rating (IDR) from AAA to AA+.<\/span><\/a> <a href=\"https:\/\/www.wsj.com\/articles\/fitch-downgrades-u-s-credit-rating-56c73b89?mod=article_inline\"><span data-contrast=\"none\">The current administration condemned the downgrade and blamed the previous administration<\/span><\/a><span data-contrast=\"none\">, while the opposing party more or less hailed the downgrade<\/span><span data-contrast=\"auto\">. We suspect identical narratives would prevail if the party in executive power were flipped.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">We were curious about how Fitch rates debt issued by sovereign nations. According to Fitch\u2019s recent press release, Fitch derives its sovereign debt ratings from an in-house statistical model that utilizes historical data on 18 economy-wide variables. In other words, Fitch analysts plugin real-world data for each nation\u2019s economy to a model, and the model generates a rating. However, an in-house committee often adjusts the rating to \u201creflect factors within its criteria that are not fully quantifiable.\u201d<\/span><span data-ccp-props=\"{&quot;335559731&quot;:720}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">From the press release, we get a sense of the process. The USA\u2019s general government debt to GDP ratio is 112.9%, well above the median of 39.3% for AAA-rated countries<\/span><a href=\"https:\/\/budget.house.gov\/resources\/staff-working-papers\/us-debt-credit-rating-downgraded-only-second-time-in-nations-history#:~:text=Debt-to-GDP%20expected%20to,of%2044.7%20percent%20of%20GDP.\"><span data-contrast=\"none\"> and 2.5 times higher than the median of 44.7% for AA+ rated countries.<\/span><\/a><span data-contrast=\"auto\"> If Fitch only used this measure, America\u2019s credit rating would be much lower. But the general government debt to GDP ratio is only one of 18 variables in the formal model, and they consider other factors.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The press release notes, \u201cSeveral structural strengths underpin the United States&#8217; ratings. These include its large, advanced, well-diversified and high-income economy, supported by a dynamic business environment. Critically, the U.S. dollar is the world&#8217;s preeminent reserve currency, which gives the government extraordinary financing flexibility.\u201d Since the U.S. dollar is a reserve currency, central banks and financial institutions hold large amounts of dollars for international transactions. Being a reserve currency lowers the U.S. government&#8217;s borrowing costs.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The press release does not indicate how much these strengths affect the 18-variable model or how much they are incorporated in the post-model adjustment. Fitch did state that they did not adjust this year\u2019s rating from the outcome implied by the basic model.\u00a0\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The top-line story is that the Fitch downgrade emerged from its perception that there \u202f\u201c\u2026.<\/span><a href=\"https:\/\/www.fitchratings.com\/research\/sovereigns\/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023#:~:text=Fitch%20Ratings%20%2D%20London%20%2D%2001%20Aug,been%20affirmed%20at%20'AAA'.\"><span data-contrast=\"none\">has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters\u201d<\/span><\/a><span data-contrast=\"auto\"> in the United States. We agree with this assessment. Increased partisan bickering undermines confidence in the USA\u2019s fiscal integrity. That our political leaders are spending their energy either contesting or gloating over the timing of Fitch\u2019s pronouncement confirms its accuracy.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Originally written on 8\/15\/2023 Earlier this month, Fitch Rating Service downgraded the United States\u2019 Long-Term Foreign-Currency Issuer Default Rating (IDR) from AAA to AA+. The current administration condemned the downgrade and blamed the previous administration, while the opposing party more or less hailed the downgrade. We suspect identical narratives would prevail if the party in [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[718],"tags":[44,349,855,42,856,857,859,858,35],"class_list":["post-83","post","type-post","status-publish","format-standard","hentry","category-fed","tag-debt","tag-economy","tag-fitch-rating-service","tag-gdp","tag-idr","tag-long-term-foreign-currency-default-rating","tag-reserve-currency","tag-sovereign-debt","tag-united-states"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Originally written on 8\/15\/2023 Earlier this month, Fitch Rating Service downgraded the United States\u2019 Long-Term Foreign-Currency Issuer Default Rating (IDR) from AAA to AA+. The current administration condemned the downgrade and blamed the previous administration, while the opposing party more or less hailed the downgrade. We suspect identical narratives would prevail if the party in [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:site_name\" content=\"Econ Briefs\" \/>\n<meta property=\"article:published_time\" content=\"2025-05-23T18:40:16+00:00\" \/>\n<meta name=\"author\" content=\"christianhartselle\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"christianhartselle\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"},\"author\":{\"name\":\"christianhartselle\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/891ce289309477b615eaec7b6a825c1b\"},\"headline\":\"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz\",\"datePublished\":\"2025-05-23T18:40:16+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"},\"wordCount\":429,\"commentCount\":0,\"keywords\":[\"debt\",\"economy\",\"Fitch Rating Service\",\"GDP\",\"IDR\",\"Long-Term Foreign-Currency Default Rating\",\"reserve currency\",\"sovereign debt\",\"United States\"],\"articleSection\":[\"Fed\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\",\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\",\"name\":\"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#website\"},\"datePublished\":\"2025-05-23T18:40:16+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/891ce289309477b615eaec7b6a825c1b\"},\"breadcrumb\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/23\\\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#website\",\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/\",\"name\":\"Econ Briefs\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/891ce289309477b615eaec7b6a825c1b\",\"name\":\"christianhartselle\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"caption\":\"christianhartselle\"},\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/author\\\/christianhartselle\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/","og_locale":"en_US","og_type":"article","og_title":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","og_description":"Originally written on 8\/15\/2023 Earlier this month, Fitch Rating Service downgraded the United States\u2019 Long-Term Foreign-Currency Issuer Default Rating (IDR) from AAA to AA+. The current administration condemned the downgrade and blamed the previous administration, while the opposing party more or less hailed the downgrade. We suspect identical narratives would prevail if the party in [&hellip;]","og_url":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/","og_site_name":"Econ Briefs","article_published_time":"2025-05-23T18:40:16+00:00","author":"christianhartselle","twitter_card":"summary_large_image","twitter_misc":{"Written by":"christianhartselle","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/#article","isPartOf":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/"},"author":{"name":"christianhartselle","@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/891ce289309477b615eaec7b6a825c1b"},"headline":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz","datePublished":"2025-05-23T18:40:16+00:00","mainEntityOfPage":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/"},"wordCount":429,"commentCount":0,"keywords":["debt","economy","Fitch Rating Service","GDP","IDR","Long-Term Foreign-Currency Default Rating","reserve currency","sovereign debt","United States"],"articleSection":["Fed"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/","url":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/","name":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","isPartOf":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/#website"},"datePublished":"2025-05-23T18:40:16+00:00","author":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/891ce289309477b615eaec7b6a825c1b"},"breadcrumb":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/23\/why-fitch-cut-americas-rating-and-why-it-matters-by-dr-cecil-bohanon-and-dr-john-horowitz\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/people.bsu.edu\/econbriefs\/"},{"@type":"ListItem","position":2,"name":"Why Fitch Cut America\u2019s Rating\u2014and Why It Matters \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"}]},{"@type":"WebSite","@id":"https:\/\/people.bsu.edu\/econbriefs\/#website","url":"https:\/\/people.bsu.edu\/econbriefs\/","name":"Econ Briefs","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/people.bsu.edu\/econbriefs\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/891ce289309477b615eaec7b6a825c1b","name":"christianhartselle","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","caption":"christianhartselle"},"url":"https:\/\/people.bsu.edu\/econbriefs\/author\/christianhartselle\/"}]}},"_links":{"self":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts\/83","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/users\/112"}],"replies":[{"embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/comments?post=83"}],"version-history":[{"count":0,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts\/83\/revisions"}],"wp:attachment":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/media?parent=83"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/categories?post=83"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/tags?post=83"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}