US Dollar, Dow Jones, S&P 500 and Nasdaq – FITCH US CREDIT RATINGS DOWNGRADE – MARKET UPDATE:
After reports emerged that Fitch, a significant credit rating agency, downgraded the US credit rating to AA+ from AAA, the US Dollar, Dow Jones, S&P 500, and Nasdaq 100 experienced declines. This downgrade was attributed partly to the “expected fiscal deterioration over the next three years.” Additionally, Fitch mentioned the limited progress in addressing medium-term challenges related to rising social security and Medicare costs, which are of critical importance due to the country’s aging population.
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The Congressional Budget Office (CBO) forecasts show that the growth of the population aged 65 or older is surpassing that of younger cohorts, leading to aging demographics. This poses challenges to maintaining a funding system primarily reliant on prime-age participants.
Although previous episodes of US credit rating downgrades have caused similar reactions in equities, they have typically been short-lived. However, this time, the rising interest rates have amplified the cost of debt. The CBO predicts that annual net interest costs will nearly double over the next decade.
< center>Despite the situation, there seems to be little interest from Congress in implementing fiscal austerity measures, which involve reducing government spending or raising taxes to mitigate deficits. This approach is akin to monetary tightening, which is used to slow down an economy when necessary. Nevertheless, the CBO projects that the budget deficit is expected to increase to around 7% of GDP in 2033 from the current 5.3%.
The long-term impact on Wall Street remains uncertain. A ratings downgrade could potentially raise government debt costs even further, posing a challenge for the Federal Reserve in their decision-making regarding interest rates
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