Fitch, one of the major credit rating agencies, has downgraded the US government's credit rating from AAA to AA+.
The decision was prompted by concerns surrounding the state of the country's finances and its mounting debt burden.
Fitch pointed to a "steady deterioration" in governance over the past two decades as a contributing factor to the downgrade, while expecting a “fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance”.
"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025."
US Treasury Secretary Janet Yellen criticised Fitch’s downgrade, deeming it "arbitrary" and based on outdated data from 2018 to 2020.
"Treasury securities remain the world's preeminent safe and liquid asset… the American economy is fundamentally strong," she said.
Credit ratings play a crucial role for investors in assessing the risk associated with lending money to governments. Historically, the US has been considered a highly secure investment due to the size and relative stability of its economy.
But the US has faced political challenges concerning government borrowing this year, with a drawn-out battle over lifting the debt ceiling to US$31.4 trillion nearly resulting in a default on the country’s debts.
In a post on X (formerly Twitter), former US Treasury Secretary Larry Summers deemed Fitch's decision "bizarre and inept" considering that the US economy appears “stronger than expected”.
Fitch expects the US to slip into a mild recession later this year.