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Jul 02, 2023

Warren Buffet’s not worried about Fitch’s U.S. downgrade. Should you be?

In a shock to the Biden administration and the financial markets, Fitch, a debt ratings agency, has downgraded the U.S. government’s credit rating from AAA to AA+. The firm explained its move by

In a shock to the Biden administration and the financial markets, Fitch, a debt ratings agency, has downgraded the U.S. government’s credit rating from AAA to AA+.

The firm explained its move by pointing to the Congressional brinksmanship in early June that nearly resulted in the U.S. government defaulting on its debt.

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

Legendary investor Warren Buffet, chairman of Berkshire Hathaway, spoke up to calm the markets.

"Berkshire bought $10 billion in U.S. Treasurys last Monday. We bought $10 billion in Treasurys this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month" T-bills, Buffett said in an interview with CNBC. "There are some things people shouldn't worry about, this is one."

But it’s one thing for a billionaire not to be concerned. How about someone like you?

Personal finance experts say it all depends on your circumstances. If you have savings, it might actually be good for you in the long run if interest rates keep rising. But if you have lots of adjustable-rate debt, it might have a real downside at some point. But there are few signs of that on the horizon.

Matthew Schaller, MBA, CFA, CFP at Compardo, Wienstroer, Conrad & Janes at Moneta, in St. Louis, says there has been only muted bond market reaction so far.

“We are not expecting material changes to consumer debt, at least not as a result of the downgrade,” Schaller told ConsumerAffairs. “Mortgages are tied to the 10-year Treasury, which rose on the news of the downgrade vs. an expected drop. The same goes for credit card debt and car loans, which tend to be influenced by the two-year Treasury.

Schaller says the two-Year Treasury should have spiked if the market was truly worried about the U.S.'s fiscal state, but it only rose two basis points, which he said is not an abnormal move in a given trading day.

“The downgrade news itself seems immaterial on interest rates, at least for now,” he added. “Fitch’s main reasoning behind the downgrade discussed dysfunction in Washington. Which, quite frankly, there has been dysfunction in Washington for a long-time – it just seems this time it was enough of a reason to downgrade the U.S. debt.”

In spite of everything, Schaller says the U.S. economy is still showing resilience, “perhaps more surprisingly than most economists were predicting this time last year.”

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Mark Huffman has been a consumer news reporter for ConsumerAffairs since 2004. He covers real estate, gas prices and the economy and has reported extensively on negative-option sales. He was previously an Associated Press reporter and editor in Washington, D.C., a correspondent for Westwoood One Radio Networks and Marketwatch.

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