Analysis of Fitch Ratings' Rating Stance on Federal Reserve Independence and Its Impact on U.S. Treasury Risk Assessment

Based on the latest information I have collected, I will provide you with a systematic and comprehensive analysis.

---

According to the latest statement released by Fitch Ratings on January 12, 2026, Federal Reserve independence is regarded as a

for the U.S.'s AA+ sovereign credit rating [1]. Richard Francis, Senior Director at Fitch Ratings, clearly stated that the rating agency will continue to monitor the following core elements:

• Evolution of Governance and Institutional Checks and Balances
  : Assessing the evolutionary trend of institutional check-and-balance mechanisms in the U.S. political system
• Federal Reserve Policy Performance
  : Monitoring the Fed’s performance in achieving the goal of low and stable inflation

This stance echoes that of S&P Global Ratings. In its October 2024 report, S&P Global also emphasized that “the Fed’s credibility is unparalleled” and warned that “if political developments weaken U.S. institutional strength, long-term policy-making effectiveness, or Federal Reserve independence, the rating may face pressure” [1].

Fitch Ratings downgraded the U.S. long-term foreign-currency issuer default rating from AAA to AA+ in August 2023, citing three core reasons [3][4]:

Rating Downgrade Factors	Specific Performance
Erosion of Governance Standards	Governance standards have continued to deteriorate relative to AA and AAA-rated peers over the past two decades
Deteriorating Fiscal Outlook	Government debt burden is expected to continue growing
Debt Burden Projections	General government debt-to-GDP ratio is projected to rise sharply

Fitch specifically noted that “repeated debt ceiling political standoffs and last-minute solutions have undermined confidence in fiscal management” and that “unlike most of the U.S.'s peers, the government lacks a medium-term fiscal framework” [4].

---

The government shutdown that began in January 2025 further highlighted the U.S.'s governance challenges. Fitch Ratings stated in its January 10, 2025 report [2]:

• Short-Term Rating Stability
  : This shutdown has no immediate impact on the U.S.'s AA+/Stable sovereign credit rating
• Key Rating Strengths Maintained
  : The U.S. dollar’s status as the primary global reserve currency is expected to remain unchanged in the foreseeable future

However, Fitch also warned that:

• The general government deficit is projected to widen to 7.4% of GDP in 2026 and 2027 (from an estimated 6.8% in 2025)
• The general government debt-to-GDP ratio is projected to reach 122% by the end of 2027, more than double the AA rating median of 48.1% [2]

As of January 2026, the U.S. sovereign credit rating landscape is as follows:

Rating Agency	Current Rating	Rating Outlook	Downgrade Date
S&P Global	AA+	Stable	August 2011
Fitch Ratings	AA+	Stable	August 2023
Moody’s	Aa1	—	May 2025

Moody’s downgraded the U.S. rating from Aaa to Aa1 in May 2025, formally removing the U.S. from the highest credit rating camp of the three major rating agencies [5][6].

---

According to analysis by Tom Essaye, founder of Sevens Report Research, “Policy uncertainty faced by investors and markets over the past year is the highest in my career” [7]. This uncertainty mainly stems from:

1. Federal Reserve Independence Risk
   : Sustained pressure from the Trump administration on Fed Chair Powell, including a criminal investigation subpoena against Powell
2. Drastic Changes in Trade Policy
   : Major adjustments to tariffs and trade policies
3. Immigration Policy Uncertainty
   : Dramatic changes in immigration policies

The market is characterized by “hedging the U.S.” rather than “selling the U.S.” [7]:

Market Indicator	January 12, 2026 Performance	Analysis Implications
10-Year Treasury Yield	Rose about 2 basis points to ~4.18%	Short-term volatility, no breach of key technical levels
30-Year Treasury Yield	Briefly broke above the key 5% threshold	Signal of rising long-term risk premium
U.S. Dollar Index (DXY)	Fell about 0.4%	Temporary setback in investor confidence in U.S. dollar assets
Bond ETFs	VGLT down 0.2%, BND down 0.1%	Short-term pressure on fixed-income assets

Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, noted: “There’s a tug-of-war in the market right now, between fears of the bond vigilante effect and the view that Treasuries are a good long-term entry point” [7].

On January 13, 2026, U.S. market sector performance showed significant divergence [8]:

• Consumer Staples: +1.88%
• Technology: +0.89%
• Financial Services: +0.68%

• Real Estate: -1.53%
• Healthcare: -0.94%

Market participants’ reactions to the threat to Federal Reserve independence are polarized:

• Worried about the “bond vigilante” effect—investors may demand higher risk premiums on U.S. Treasuries
• Policy uncertainty premiums may rise systematically
• U.S. Treasury credit default swap (CDS) spreads may widen

• Foreign investors remained net buyers of U.S. Treasuries in 2025 [7]
• Short-term political pressure does not affect the long-term fundamentals of the U.S. economy
• The U.S. dollar’s reserve currency status remains a core support

JPMorgan Chase noted in its 2026 market outlook that the “sell the U.S.” theme may become the dominant narrative [7]. Key response strategies include:

1. Diversified Allocation
   : Increase allocation to undervalued Asian currencies
2. Hedging Strategies
   : Use safe-haven assets such as gold and the Swiss franc to hedge U.S. dollar exposure
3. Yield Curve Strategies
   : Seek trading opportunities amid yield curve fluctuations

---

Impaired Federal Reserve independence may affect U.S. asset risk assessment through the following path:

Erosion of policy independence
       ↓
Decline in monetary policy credibility
       ↓
Rising volatility in inflation expectations
       ↓
Rising Treasury term premium
       ↓
Systemic rise in overall borrowing costs
       ↓
Asset risk repricing

S&P Global explicitly warned: “The Fed’s credibility supports the U.S.'s monetary flexibility and the dollar’s role as the primary international reserve currency—both are key components of the sovereign rating” [1].

If Federal Reserve independence continues to be challenged, it could trigger:

1. Marginal Weakening of Reserve Currency Status
   : Global central banks may gradually increase allocations to non-U.S. dollar reserves
2. Pressure on U.S. Dollar Valuation Adjustment
   : The U.S. dollar may face structural moderate depreciation pressure in the long term
3. Reallocation of Capital Flows
   : International investors may re-evaluate the risk weight of U.S. Treasuries

---

1. Independence as a Rating Bottom Line
   : Fitch explicitly cites Federal Reserve independence as a key support factor for the AA+ rating, implying that any substantive erosion of independence could trigger a rating review
2. Continuous Monitoring of Governance Standards
   : The evolution of institutional check-and-balance mechanisms will be a key focus of Fitch’s ongoing monitoring
3. Current Rating Stable but Under Pressure
   : While the U.S. dollar’s reserve currency status provides a buffer, persistent governance challenges may erode the rating foundation over the long term

Risk Dimension	Current Status	Potential Evolution Scenario
Short-Term Volatility	High	Policy event-driven volatility will persist
Term Premium	Rising	May rise further if policy uncertainty persists
U.S. Dollar Confidence	Temporarily Dented	Depends on the resolution process of policy conflicts
Credit Spreads	Relatively Stable	CDS spreads have not widened significantly

Based on the above analysis, investors should pay attention to the following key indicators when assessing U.S. asset risks:

1. Treasury Yield Trends
   : Especially the changing trends and term structure of 10-year and 30-year yields
2. U.S. Dollar Index Fluctuations
   : A real-time barometer reflecting international market confidence in U.S. assets
3. Credit Spread Changes
   : Changes in U.S. Treasury CDS spreads and U.S. investment-grade credit spreads
4. Policy Signal Monitoring
   : Focus on statements about policy independence in FOMC meeting minutes and speeches by Fed officials

---

[1] Reuters - “Fitch Ratings says Fed independence is key factor for US sovereign rating” (https://www.reuters.com/business/fitch-ratings-says-fed-independence-is-key-factor-us-sovereign-rating-2026-01-12/)

[2] Fitch Ratings - “U.S. Govt Shutdown Highlights Policymaking, Governance Challenges” (https://www.fitchratings.com/research/sovereigns/us-govt-shutdown-highlights-policymaking-governance-challenges-01-10-2025)

[3] Guidehouse - “What we can Learn from the Fitch Credit Downgrade” (https://guidehouse.com/insights/financial-services/2023/fitch-rating-downgrade)

[4] The Conference Board - “Fitch Downgrades US Rating Amid Fiscal and Governance Concerns” (https://www.conference-board.org/pdfdownload.cfm?masterProductID=48798)

[5] Western Asset - “End of an Era—Moody’s Downgrades US to Aa1” (https://www.westernasset.com/us/en/research/blog/end-of-an-era-moodys-downgrades-us-to-aa1-2025-05-19.cfm)

[6] Fidelity - “Does the US debt downgrade matter for investors?” (https://www.fidelity.com/learning-center/trading-investing/us-debt-downgrade)

[7] Morningstar - “Here’s what’s at stake for investors as Trump opens a new pressure campaign against Fed’s Powell” (https://www.morningstar.com/news/marketwatch/2026011271/heres-whats-at-stake-for-investors-as-trump-opens-a-new-pressure-campaign-against-feds-powell)

[8] Jinling API - Market Sector Performance Data (based on real-time data as of January 13, 2026)