What to Know in Washington: Fitch Downgrade Stokes Funding Fight

Washington’s hostile political factions quickly took up Fitch Ratings’ downgrade of US government debt as a new weapon of political combat — highlighting in part why the firm stripped the US of its top-tier credit rating.

Democrats and Republicans on Wednesday traded blame for the downgrade, with a group of hard-right conservatives promising to dig in during a looming spending fight that could shut down the federal government as soon as Oct. 1.

The bitter recriminations echoed the concerns raised by Fitch in announcing its decision after the close of financial markets on Tuesday. In a statement, Fitch cited an “erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”

Source: Bloomberg

President Joe Biden, who has spent the summer promoting his “Bidenomics” agenda as the economy shows surprising strength, was privately frustrated over the Fitch decision and expressed irritation to his team, according to people familiar with the matter.

Progress on jobs, real wages, and bringing down inflation — all heading in the right direction — typically matter more to voters than a Wall Street credit grader’s score. Still, any indicator pointing to shortfalls in stewardship of the economy could damage public perceptions of Biden as he seeks reelection.

Republicans blamed the decision on Biden’s policies, saying spending on domestic programs is fueling the national debt. The right-wing House Freedom Caucus portrayed it as further reason to demand lower spending levels during the coming shutdown fight.

Biden’s team blamed Donald Trump’s efforts to overturn the 2020 election, saying that Fitch’s staff in discussions ahead of the announcement repeatedly cited concerns about the effect of the Jan. 6, 2021 attack on the Capitol on Washington’s ability to govern.

While Fitch’s decision has thus far had minimal impact on the short-term cost of borrowing for the US government, it will likely inflame the fight over government funding levels for next fiscal year. Jordan Fabian, Erik Wasson, and Jennifer Jacobs preview the coming conflict.

BIDEN’S AGENDA

• The president has no public events scheduled.

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To contact the reporters on this story: Giuseppe Macri in Washington at gmacri@bgov.com; Brandon Lee in Washington at blee@bgov.com

To contact the editor responsible for this story: Kayla Sharpe at ksharpe@bloombergindustry.com