On Tuesday, credit rating agency Fitch made the unexpected decision to downgrade the U.S. government's top credit rating from AAA to AA+.

This move came as a surprise to investors and sparked an angry response from the White House. The downgrade came despite the resolution of the debt ceiling crisis just two months ago.

In response to the news, traders immediately sought safer investments, leading to a push out of stocks and into government bonds and the dollar.

Fitch justified its decision to downgrade the United States based on concerns about the country's fiscal deterioration over the next three years and the repeated down-to-the-wire debt ceiling negotiations. These negotiations have raised doubts about the government's ability to meet its financial obligations and pay its bills.

Fitch had previously signaled the possibility of downgrading the U.S. government's credit rating back in May. Even after the resolution of the debt ceiling crisis in June, Fitch maintained its position and announced its intention to finalize the review during the third quarter of the year.

With the recent downgrade, Fitch now joins Standard & Poor's as the second major rating agency to remove the United States' triple-A rating.

This decision by Fitch comes two months after President Joe Biden and the Republican-controlled House of Representatives reached an agreement on the debt ceiling. The agreement lifted the government's borrowing limit of $31.4 trillion, putting an end to months of political tension and brinkmanship.

Despite this resolution, Fitch proceeded with the downgrade, citing concerns about the country's fiscal situation and the potential risks to its ability to meet financial obligations.

Fitch justified its decision to downgrade the U.S. government's credit rating, stating that there has been a gradual decline in governance standards over the past two decades, particularly concerning fiscal and debt matters.

Despite the bipartisan agreement reached in June to suspend the debt limit until January 2025, Fitch remained unconvinced.

U.S. Treasury Secretary Janet Yellen disagreed with the downgrade, describing it as "arbitrary and based on outdated data." The White House also expressed strong disagreement, emphasizing that the United States should not be downgraded, especially when President Biden's leadership has led to the strongest economic recovery among major economies worldwide.

Experts believe that Fitch's move highlights the significant damage caused to the nation's reputation by the prolonged and contentious debates over the debt ceiling. The uncertainty during the debt ceiling crisis in May brought the country dangerously close to a potential default, leaving a lasting impact on its credibility in the eyes of rating agencies and investors.

"This basically tells you the U.S. government’s spending is a problem," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA.

Fitch said repeated political standoffs and last-minute resolutions over the debt limit have eroded confidence in fiscal management.

Michael Schulman, chief investment officer at Running Point Capital Advisors said the "U.S. overall will be seen as strong but I think it’s a little chink in our armor."

The downgrade of the U.S. government's credit rating by Fitch has raised concerns about its impact on the country's reputation and standing. The timing of the downgrade surprised many, considering that Fitch had already indicated the possibility earlier.

U.S. stock futures fell in European trading, indicating potential sharp declines in benchmark indices later.

However, the longer-term impact of the downgrade seemed to have a relatively calm effect on investors, as reflected in the yield on the benchmark U.S. Treasury note and the cost of insuring U.S. sovereign debt remaining stable.

Investors generally rely on credit ratings to assess the risk of companies and governments when they raise financing in debt capital markets. A lower credit rating typically results in higher financing costs for borrowers.

However, experts believe that most long-term investors are unlikely to make hasty decisions based solely on the rating change from AAA to AA+. The news came unexpectedly for many in the market, adding to the overall uncertainty and vulnerability to potential negative news at this juncture.

The impact of Fitch's recent downgrade of the U.S. government's credit rating is expected to be limited compared to previous instances. In 2011, Standard & Poor's downgraded the top "AAA" rating to "AA-plus" after a debt ceiling deal, causing significant turmoil in U.S. stocks and global markets during the euro zone financial crisis.

Prior to the recent Fitch downgrade, the agency had already placed the U.S. sovereign debt on watch for a possible downgrade, citing risks related to political brinkmanship and increasing debt burden. Market analysts have warned that a downgrade of Treasury debt could trigger credit implications and lead to downgrades of other institutions' debt.

However, some experts believe that the impact of the latest downgrade may not be as severe as in the past. It is worth noting that Moody's Analytics had previously reported that a downgrade of U.S. Treasury debt could have cascading effects on other institutions' debt ratings.

Nonetheless, the overall impact on investment portfolios holding top-rated securities is still a concern raised by some analysts.

Financial analysts, including Raymond James' Ed Mills, expect the market's response to Fitch's downgrade of the U.S. government's credit rating to be minimal. Mills noted that after Standard & Poor's downgrade in the past, many contracts were adjusted to prioritize the government guarantee rather than the Fitch rating, making the guarantee more crucial.

This sentiment was echoed by other experts, like Mohamed El-Erian, President at Queens' College, who expressed on LinkedIn that the announcement is unlikely to cause any lasting disruption to the U.S. economy and markets. The general consensus among these analysts is that the impact of the downgrade will be relatively insignificant.