Fitch Ratings on Friday turned more negative on the outlook for the gold-plated U.S. credit rating.
High fiscal deficits and debt were already on a rising medium-term path before the onset of the huge economic shock precipitated by the coronavirus, the ratings agency said in giving the U.S. a “negative” outlook, while maintaining a AAA rating.
The U.S. had the highest government debt of any AAA-rated sovereign heading into the crisis, and Fitch expects general government debt to exceed 130% of GDP by 2021.
The U.S. sovereign rating is supported by structural strengths that include the size of the economy, high per capita income and a dynamic business environment.
Fitch considers U.S. debt tolerance to be higher than that of other ‘AAA’ sovereigns. Fitch said it expects negative real interest rates and continued loose monetary policy at the Federal Reserve to provide some support to public debt dynamics. The report also looked ahead to the November election.
“The odds of Democrats overturning the Republican majority in the Senate have shifted in their favor over the past quarter, but it is unlikely that either party will achieve a 60-seat majority,”
Fitch analysts wrote. “A continuation of policy gridlock is a risk. Political polarization may weaken institutions and reduces the scope for bipartisan cooperation, hindering attempts to address structural issues (including some highlighted by the pandemic and protests) but also longer-term fiscal challenges.”
Source: Market Watch