At the end of July, the credit rating of the United States has gone to “negative” from “stable” according to rating agency Fitch. Citing deterioration in the country’s public finances and the absence of a credible fiscal consolidation plan Fitch nevertheless affirmed its “AAA” rating on the country.
High fiscal deficits and debt were already on a rising medium-term path even before the onset of the huge economic shock precipitated by the coronavirus. They have started to erode the traditional credit strengths of the US. Financing flexibility, assisted by Federal Reserve intervention to restore liquidity to financial markets. There is a growing risk that U.S. policymakers will not consolidate public finances sufficiently to stabilize public debt after the pandemic shock has passed.
Although a massive policy response has prevented a deeper downturn – such that Fitch expects a less severe contraction in the U.S. in 2020 than in many other advanced economies – the agency revised down their macroeconomic projections since March and downside risks persist. You can find the Fitch announcement here.
