Fitch Ratings has reaffirmed the United States’ credit rating at ‘AA+’ with a stable outlook, citing the structural strengths of the US economy and the unparalleled financing flexibility provided by the US dollar’s status as the world’s leading reserve currency.
However, the rating agency has also highlighted growing concerns over the country’s high fiscal deficits, rising debt burden, and increasing political polarization, all of which pose risks to long-term economic stability.
Rising deficits and debt burden
Fitch has expressed significant concern over the United States’ fiscal health, particularly the nation’s high fiscal deficits and substantial government debt levels.
In 2023, the general government (GG) deficit surged to 8.8% of GDP, up from 4.1% in 2022.
This widening gap was primarily driven by declining revenues, increased interest payments, and worsening state and local government finances.
The ratings agency noted, “The government has failed to meaningfully tackle large fiscal deficits, the growing debt burden, and looming increases in spending associated with an aging population.”
Looking ahead, Fitch expects the GG deficit to narrow slightly to 8.1% of GDP in 2024, but the interest burden is likely to continue rising due to higher debt levels and elevated interest rates.
By 2026, Fitch projects the GG debt-to-GDP ratio could reach 124.4%, compared to 114% at the end of 2023. Without significant fiscal policy changes, this ratio could climb to 131% by 2028.
Political polarization and governance challenges
Fitch also highlighted the challenges posed by the increasingly polarized political environment in the United States.
The agency pointed to frequent standoffs over the debt ceiling and threats of government shutdowns as evidence of governance issues that constrain the US credit rating.
These challenges, coupled with the failure to address large fiscal deficits, further complicate the country’s economic outlook.
The November 2024 presidential and congressional elections are expected to play a critical role in shaping US economic and fiscal policies.
However, Fitch does not anticipate a significant shift in the underlying fiscal position, regardless of the election outcome.
The agency expects that the leading candidates—Vice President Kamala Harris and former President Donald Trump—are likely to maintain policies that will extend most of the 2017 tax cuts, perpetuating the current fiscal trajectory.
Fitch forecasts that US economic growth will decelerate in 2024, with an average annual growth rate of 2.1%, down from 2.5% in 2023.
The agency attributes this slowdown to a narrowing deficit, which is expected to reduce government spending and, consequently, contribute less to overall economic growth.
Additionally, a rising trade deficit is projected to negatively impact net exports.
The Federal Reserve, which has kept interest rates steady since July 2023, is expected to begin a rate-cut cycle in September 2024.
Fitch anticipates a 25-basis-point cut in September, followed by another in December, with further reductions likely in 2025.
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