Outreach from Fitch Ratings to the Treasury Department on Monday afternoon set off a frenzy inside the Biden administration to respond to news that would once again put President Joe Biden’s handling of the economy under the microscope.
The news from Fitch – that it would one day later downgrade the United States’ creditworthiness, the first such move by a ratings agency in more than a decade – set off a frenetic effort among Biden’s top advisers in the Treasury Department, White House and campaign to craft a response that would paint the decision as controversial, a view shared by a number of independent economists, and pinning any responsibility on Biden’s predecessor.
“The view, directly from the economic team, was that we needed to be aggressive in our response,” a senior administration official told CNN.
Another White House official, who described frustration among top aides after initially learning the news, said the administration was particularly vexed by the timing: “Why now?”
The move wasn’t altogether unexpected: Fitch placed the country’s credit rating on a negative “watch list” in May, noting that it was at risk of a downgrade, and the 24-hour warning afforded the administration is customary. The credit downgrade is not actually a reflection of whether the US economy is strong and instead is focused on whether the American government is able to reliably pay its bills.
The economic environment in recent months has improved markedly – economic growth soared past expectations this year, consumer sentiment has risen substantially and inflation has fallen near two-year lows. Still, public perception about the US economy remains negative, with 51% of Americans saying they think the economy is still in a downturn and getting worse, according to a new CNN poll conducted by SSRS. The Biden administration is likely concerned that a credit rating downgrade, though not a direct reflection of the economy’s health, could further erode the public’s trust in the president’s ability to improve America’s financial standing.
“There was unanimity from Treasury to (the National Economic Council) to (the Council of Economic Advisers) that this was a mistake by Fitch,” the senior administration official added, though they declined to acknowledge any direct communication or coordination with the reelection campaign that may have taken place.
The fierce pushback showed just how seriously Biden’s orbit is taking its effort to shift voter perception on his handling of the economy. The quick and aggressive response Tuesday to the downgrade, which at least one top administration official described as “puzzling” and “flawed,” is just the latest example of the challenges Biden faces over economic messaging. The White House has played up “Bidenomics” in recent months as they seek to make his economic policies and message a critical plank in the president’s reelection argument to voters, reminding them of his administration’s achievements on infrastructure, jobs and manufacturing.
While it’s unclear how much the campaign will ultimately lean into what they described as a “Trump downgrade” Tuesday, it could provide an opportunity to attack the current Republican front-runner on the economy. Republicans, on the other hand, think they have plenty of room to criticize Biden on the economy – and they plan to do so.
“Scandals, broken promises and runaway inflation torched extreme Democrats’ credibility with the American people,” Will Reinert, national press secretary for the National Republican Campaign Committee, said in a statement. “When families hear ‘Bidenomics’ they roll their eyes because they know their gas and grocery bills are still through the roof.”
At the forefront of the administration’s response so far has been Treasury Secretary Janet Yellen who first criticized the decision Tuesday as “arbitrary and based on outdated data,” saying that that information from Fitch’s own models show a marked decline during the middle of the Trump administration and a slight increase since Biden took office.
“Fitch’s decision is puzzling in light of the economic strength we see in the United States,” she added in remarks Wednesday afternoon. “Despite the gridlock, we have seen both parties come together to pass legislation to resolve the debt limit, as well as to make historic investments in our infrastructure and American competitiveness.”
Treasury officials also told reporters Wednesday that they aren’t particularly concerned about a downgrade impacting the dominance of US securities on the global market, saying they see continued and “robust” demand for Treasury securities, and that the American economy is “fundamentally strong.”
White House press secretary Karine Jean-Pierre said the White House “strongly disagrees” with Fitch’s assessment and said it “defies reality” to downgrade the US given the current economic recovery as she also cast the blame on the GOP.
“It’s clear that extremism by Republican officials – from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations – is a continued threat to our economy,” Jean-Pierre said.
The Biden campaign was quick to follow, framing it as a “Trump downgrade” and a “direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness.”
“Failed leadership has consequences. Today’s Trump downgrade is just the latest one,” Biden-Harris campaign spokesperson Kevin Munoz said in a statement to CNN.
The double-barrel messaging from the White House and Biden campaign echoed the debt ceiling fight earlier this year when the Biden administration leaned into the argument that the debt had been accumulated over centuries and ballooned during former President Donald Trump’s tenure.
Independent financial analysts and economists were also quick to criticize the move Tuesday evening, providing political cover to the White House and campaign as they push to pin the blame on Republicans.
“The United States faces serious long-run fiscal challenges. But the decision of a credit rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept,” former Treasury Secretary and famed economist Lawrence Summers said on Twitter.
Mark Zandi, chief economist at Moody’s Analytics, also called the downgrade decision “off-base” and said that the rating agency’s justification for the downgrade was “odd.”
The downgrade comes after lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default. But the January 6, 2021, insurrection was also a major contributing factor that Fitch representatives relayed to Biden administration officials, a person familiar with the matter told CNN, despite the fact that the credit agency did not mention it in their full report.
Defending their decision Wednesday, Fitch’s lead analyst on US sovereign ratings pointed to the nation’s growing debt, minimized the role of the January 6 insurrection and blamed both parties for America’s fiscal problems.
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