Fitch revises the US outlook to negative; confirms AAA rating

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(Reuters) – Fitch Ratings on Friday revised the outlook for the United States’ triple A rating to negative from stable, citing erosion in credit strength, including a growing deficit to fund stimulus measures to combat fallout from the coronavirus pandemic.The credit rating agency also said that the future direction of US fiscal policy depends in part on the November presidential election and the resulting composition of Congress, warning that a political deadlock risks could continue.

Debt and deficits, which were already growing before the pandemic, began to erode the country’s traditional credit strengths, Fitch said in a report.

“Funding flexibility, supported by the intervention of the Federal Reserve to restore liquidity in financial markets, does not entirely dissipate risks to medium-term debt sustainability, and there is a growing risk that US policymakers do not consolidate public finances enough to stabilize public debt after the pandemic. the shock is over, ”Fitch said.

He added that US public debt, the highest of any AAA-rated sovereign nation as the crisis approaches, is expected to exceed 130% of gross domestic product by 2021.

Mike Englund, chief economist at Action Economics, predicted that the markets would react negatively to the move.

“It reduces confidence in the US financial markets and causes some entities to want to sell Treasuries, so you can see yields rebound even though no one is really looking for US defaults,” he said.

Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, Calif., Said investors are unlikely to react strongly to Fitch’s announcement.

“If people really cared about US debt, you wouldn’t see bond yields where they are,” Merk said. “It’s remarkable, but with everything that’s going on in the United States and other countries, the quality of balance sheets is deteriorating, and that’s no surprise.”

The revised outlook to negative covers a longer period, which means the United States will not be facing a possible downgrade anytime soon. This leaves the country with the best ratings of two credit bureaus – Fitch and Moody’s Investors Service, which confirmed an Aaa rating with a stable outlook in June.

Standard & Poor’s global ratings, which downgraded the country’s credit rating a notch to AA-plus in 2011 in the wake of the financial crisis and the great recession, hold a stable outlook on this rating.

It was the only downgrade of the US rating by the major modern-day credit bureaus.

Reporting by Nishara Karuvalli Pathikkal in Bengaluru and Karen Pierog in Chicago; additional reporting by Noel Randewich in San Francisco; Editing by Anil D’Silva and Tom Brown

Our standards:Thomson Reuters Trust Principles.

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