With its financing flexibility and its prominence as having the most liquid capital markets in the world, the United States has earned an affirmation of its AAA rating and stable outlook from Fitch Ratings.
According to Fitch, the U.S. economy is one of the most productive and dynamic and is supported by strong institutions and a favorable business climate. The U.S. is the issuer of the world’s preeminent reserve currency, which accounts for nearly two-thirds of global reserves.
Uncertainty remains, however, over the short-term fiscal and borrowing outlook, but Fitch expects tax cuts to lead to a loosening in fiscal policy. The U.S. government debt burden is a relative credit weakness in comparison to other AAA-rated sovereigns, Fitch said. A tax reform proposal may lead to an increase in deficits over a 10-year time span, though the plan would aim at boosting investment and growth. Tax cuts are not likely to lead to a lasting boost in growth, however, Fitch believes.
The ratings agency has revised its real GDP growth forecast for the U.S. to 2.3% for next year and 2.6% for 2018. Trade protectionism and checks on immigration would be negative for growth in the medium term. Fitch expects the Federal Reserve to continue to raise interest rates, with two more 25 basis point increases in 2017 and four in 2018, with no major effects on credit growth.
Fitch does not anticipate any developments that would lead to a downgrade in the stable outlook for the United States. Developments that may lead to negative rating action, however, include 1) a significant increase in government deficits and the debt-to-GDP ratio, and 2) a deterioration in the credibility of economy policy or a shock that affects the U.S. dollar’s role as the foremost global currency.
– Adam Fusco, associate editor