Fitch Ratings affirmed its gold-plated AAA rating on Monday for U.S. government-issued debt.
The AAA rating was affirmed based on a bettering near-term outlook for U.S. debt and deficits, Fitch said. It noted that the rating reflects the United States’ “unparalleled financing flexibility as the issue of the world’s pre-eminent reserve currency … and as home to the world’s deepest and most liquid capital markets.”
While upholding the AAA rating was never in doubt, Fitch did spell out scenarios under which U.S. creditworthiness might be knocked down a notch or more.
“A significant increase in government deficits and debt/GDP ratio, for example if the U.S. authorities do not take measures in the medium to long term to offset rising expenditure pressures from aging and higher interest rates, could lead to a downgrade,” Fitch said in a statement.
Another scenario cited by Fitch could involve a “deterioration in the coherence and credibility of economic policymaking or a negative shock that erodes the role of the U.S. dollar as the pre-eminent global reserve currency and reduces financing flexibility and debt tolerance could lead to a downgrade.”
In a dark point for Washington brinksmanship, credit-rating agency Standard & Poor’s downgraded U.S. debt on Aug. 5, 2011 from AAA to AA + and put the United States on a watchlist, citing partisan battles over raising the debt ceiling and an inability to forge a plan to deal with long-term debts.
Fitch and Moody’s Investors Service did not follow suit at the time, and S&P in June 2013 upgraded the U.S. debt rating to stable, although it has not returned the United States to AAA status. It remains at AA +, the same rating for smaller economies such as Abu Dhabi and Finland.
Ratings reflect the predicted ability to repay investors, and many big pension funds and endowments are not allowed to hold any securities that don’t have the AAA rating.
In its Monday statement, Fitch said it assumes that the U.S. federal debt limit, which was re-imposed last month, would be suspended again or raised “in due course” after the Treasury Department runs out of extraordinary measures it taps to keep the government funded.
“The economy is one of the most productive, dynamic and technologically advanced in the world, underpinned by strong institutions and a favorable business climate,” Fitch noted.
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