The United States' credit rating was downgraded by Fitch on Tuesday from AAA to AA+, citing concerns about the rising federal debt and governance "erosion" that saw the political standoff over the debt ceiling a few months ago.

"The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance" relative to peers, said Fitch in a statement.

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"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025."

The White House considered that the agency's decision "defies reality," while US Treasury Secretary Janet Yellen announced that she "strongly disagrees" with Fitch's move, calling the change "arbitrary and based on outdated data."  

"Treasury securities remain the world's preeminent safe and liquid asset, and... the American economy is fundamentally strong," Yellen said in a statement, saying that Fitch's quantitative rating model declined between 2018 and 2020.

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Alec Phillips, chief political economist at Goldman Sachs, said: "The downgrade mainly reflects governance and medium-term fiscal challenges, but does not reflect new fiscal information,"

The decision "should have little direct impact on financial markets as it is unlikely there are major holders of Treasury securities who would be forced to sell based on the ratings change."

John Canavan, lead US analyst at Oxford Economics, believes that Fitch's decision will not have a "lasting market impact."  

"One key reason for that is that the S&P downgrade more than a decade ago already broke the dam on this front," he told AFP.

But "psychological support for dollar-denominated debt" could be affected in the short-term, including with Treasury auctions at a time when it [Treasury] needs to increase its issuance volume, he said.

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In May, Fitch had placed the country's credit on "rating watch negative," reflecting increased political partisanship that hampered a resolution to raise or suspend the debt limit ahead of a looming deadline.

Fitch placed the US on "rating watch negative" last May when the country was witnessing a partisan political crisis over the debt ceiling.

Despite reaching an agreement to suspend the borrowing limit for the next two years, the agency maintained its outlook.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters," the agency said Tuesday.  

"The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."

The rating institution added that the United States government "lacks a medium-term fiscal framework" and has seen only "limited progress" in addressing challenges, including rising social security and Medicare costs.