HOLLYWOOD, Fla. – The financial world is watching closely as Fitch Ratings downgraded the U.S. debt rating from a perfect AAA to an AA+ on Tuesday.
The effects were already being felt as the three major indexes were down by mid-Wednesday morning.
Global stocks also fell Wednesday, after U.S. stock futures opened lower after the rating agency issued its downgrade, with Dow futures sliding about 100 points, according to Fitch Ratings.
Chad NeSmith, a portfolio analyst at Tobias Financial Advisors, told Local 10 News that a credit rating downgrade hasn’t happened since 2011 and it has been the second downgrade in U.S. history.
The credit rating agency says it happened because of a “steady deterioration in standards of governance over the last 20 years.”
As both Democrats and Republicans bicker over raising the debt limit to keep the government from defaulting on its financial obligations, NeSmith says the U.S. got here because of the current debt ceiling.
“Part of this has to do with overall the polarization that we see in politics over the long term,” he said.
When asked about the short-term ramifications and what does the downgrade mean for the average American, NeSmith said, “As the U.S. government battles with an increase in deficit and a possible recession next year, they may see increased taxes in the future to make the deficit smaller.”
As a certified financial planner and analyst, NeSmith told Local 10 viewers, if you have a financial plan, you should stick to it and don’t make any drastic changes based on the credit downgrade.
“If the market is down, it’s a good day to buy, most of the time,” said NeSmith.
As for the credit rating, he says eliminating the debt ceiling and getting the deficit in order could be ways to get the rating back up.
On Wednesday, Local 10 also spoke with U.S. Treasury Secretary Janet Yellen who said she strongly disagrees with the downgrade, pointing to positives in the economy.
“Fitch’s decision is puzzling in light of the economic strength we see in the United States. Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators,” she said.
Meanwhile, experts say a downgrade could make it harder for the government to borrow money.
“The main effect will be possible higher taxes in the future,” said NeSmith.
Credit agencies will likely continue to monitor what happens when it comes to the debt ceiling. That conversation is expected to occur in January of 2025.
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