Fitch Ratings revised the outlook on the United States’ triple-A rating to negative from stable on Friday, citing eroding credit strength, including a growing deficit to finance stimulus to combat fallout from the new coronavirus pandemic.
The credit rating agency said the future direction of US fiscal policy depends in part on the November election for president and the resulting makeup of Congress, cautioning there is a risk policy gridlock could continue.
Debt and deficits, which were already rising before the pandemic, have started to erode the country’s traditional credit strengths, Fitch said in a report, Reuters reported.
“Financing flexibility, assisted by Federal Reserve intervention to restore liquidity to financial markets, does not entirely dispel risks to medium-term debt sustainability, and there is a growing risk that US policymakers will not consolidate public finances sufficiently to stabilize public debt after the pandemic shock has passed,” Fitch said.
It added that US government debt, the highest among any AAA-rated sovereign nations heading into the crisis, was expected to exceed 130% of gross domestic product by 2021.
Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California, said investors would probably not react strongly to Fitch’s announcement.
“If people really had jitters about US debt, you wouldn’t see bond yields where they are,” Merk said.
The outlook revision to negative covers a longer time frame, meaning the United States does not face a potential rating downgrade anytime soon. That leaves the country with top ratings from two credit agencies— Fitch and Moody’s Investors Service, which affirmed an Aaa rating with a stable outlook in June.
Standard & Poor’s Global Ratings, which dropped the country’s credit rating by a notch to AA-plus in 2011 in the wake of the financial crisis and Great Recession, has a stable outlook on that rating.
That was the only downgrade to the US rating by major credit agencies in modern times.
