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White House Strikes Back After Credit Downgrade, Defending Biden’s Economic Message

The Fitch Ratings agency recently downgraded the United States’ long-term credit rating from AAA to AA+, sparking criticism from congressional Republicans and budget hawks. While many economists were bewildered by the downgrade, the Biden administration swiftly mobilized a response to defend the president’s economic record.

The administration had been lobbying against the downgrade and expressed anger when Fitch went ahead with the decision. Leading economic figures both inside and outside the administration criticized the timing and substance of the announcement.

The aggressive pushback was aimed at preventing the downgrade from overshadowing Biden’s positive economic news and was a reflection of the significance of an improving economic outlook for the president’s re-election campaign.

Jared Bernstein, Chairman of the White House Council of Economic Advisers, emphasized that the Fitch decision was arbitrary and outdated. He highlighted the administration’s accomplishments in fiscal policy and economic growth, such as a bipartisan deal to raise the debt limit and modest reductions in federal spending.

The timing of the downgrade was somewhat fortuitous for the White House as it coincided with the release of a criminal indictment against former President Donald J. Trump. Throughout the year, news coverage has often focused as much on Trump as on Biden.

Furthermore, the downgrade had limited impact on financial markets, as investors largely ignored it. According to analysts at Goldman Sachs, the downgrade should have little direct consequences.

Fitch cited several reasons for the downgrade, including the expected deterioration in fiscal conditions over the next few years, a growing government debt burden, and governance issues. The agency specifically mentioned the repeated political standoffs over raising the debt limit, eroding confidence in fiscal management.

Fitch also expressed concerns about the rising costs of Medicare and Social Security benefits as more Americans retire, as these are expected to contribute significantly to the increasing federal debt in the coming decade. Fitch predicted a mild recession by the end of the year, making this the second credit downgrade in American history linked to debt limit disputes.

Immediately after the downgrade announcement, Biden administration officials swiftly responded. Treasury Secretary Janet L. Yellen disagreed strongly with the ratings change, considering it arbitrary and based on outdated data.

The administration organized a call with reporters to further criticize the downgrade, questioning Fitch’s decision and pointing out the strong recent economic data. They reiterated the president’s commitment to spending cuts, along with tax increases on corporations and the wealthy, to reduce future budget deficits even further.

Republicans seized the opportunity to criticize Biden, highlighting the projected increase in deficits and interest costs. They emphasized the urgent need to address the nation’s financial health before it becomes unsustainable.

For over a decade, fiscal hawks have been warning about the potential unsustainability of America’s debt, and their concerns grew louder as trillions were borrowed to mitigate the impact of the Covid-19 pandemic. The cost of federal borrowing surged as the Federal Reserve raised interest rates to combat inflation.

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