Risks beyond downgrade

US fiscal position can lead to market dislocations

Fitch Ratings’ decision to downgrade the US debt didn’t have much effect on financial markets on Tuesday, although they fell on Wednesday. The rating action drew sharp reactions because practically no one in the financial markets doubts the US government’s debt servicing capabilities. US Treasury Secretary Janet Yellen, for instance, called it “arbitrary and based on outdated data”. Although the rating action may not affect financial markets significantly in the immediate short run, as was the case after Standard & Poor’s downgrade in 2011, some of the reasons highlighted by Fitch Ratings for its action should raise concerns. This is