20 Second Advisor: Federal Spending Duels and the United States’ Credit Rating

The crisis about the federal debt ceiling back in June was temporarily averted when lawmakers agreed to suspend the ceiling and ensure that the US didn’t default on our debt. However, there still may be a government shutdown looming later this fall, since the agreement reached included freezing some funding and capping spending.

A fallout that from these political standoffs and punting came at the beginning of this month. Fitch – one of the major credit ratings firms – downgraded the US from AAA to AA+, referencing the political standoffs which have ‘eroded confidence in fiscal management’.   The United States has long been the standard for a safe and liquid asset. Is this downgrade going to change that? Will the US have to offer higher interest rates to investors to compensate for this downgrade? In my opinion, it is unlikely. AA+ is still an extremely high rating. Investors all over the world buy treasuries, and institutions and individuals that invest in the US Treasury market will most likely continue to do so. If an investor is considering purchasing a bond from a corporation, the credit rating matters a great deal. But who checks the credit rating of a US treasury bond before considering whether to add it to their portfolio? For now, the US still has the preeminent safety reputation.