Fitch threatens to cut US credit

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The rating agency is worried about the rapidly deteriorating state of the US treasury and the lack of a plan to straighten out the corona-derailed budget.

Fitch is still retaining the AAA rating for the United States, but changes the outlook from ‘stable’ to ‘negative’. In this way, the credit rating agency makes it clear that a rating downgrade may be possible in the not too distant future.

The rating agency emphasizes that US sovereign debt continues to benefit from the sheer size of the economy, high average per capita income, business dynamics and the fact that the US dollar is still the planet’s major reserve currency.

Thousands of billions

The US has also been able to finance the thousands of billions of dollars in corona measures very cheaply in recent months: the average interest rate on the US government debt has even dropped from 2.5 percent in June last year to 1.75 percent now.

On the other hand, however, the federal US budget deficit and its accompanying public debt were “high” before the outbreak of the corona crisis, “undermining the traditional strong US borrowing power.”

130%

The US national debt
will reach 130 percent of GDP by 2021, Fitch predicts

Since the corona crisis, the US budget deficit, like many other national governments, has been widening. Fitch reckons that Washington is projected to have a budget deficit of 20 percent this year, and that this will increase slightly to 11 percent by 2021. This will lead to a national debt of 130 percent of GDP at the end of next year.

Fitch doubts that the US government will be able or willing to get those derailed finances back under control quickly: “There is a risk that the current policy stalemate will continue after the November presidential and congressional elections.” In addition, “political polarization can further weaken institutions” and make much-needed cooperation between Democrats and Republicans even more difficult.

The US still has the highest AAA rating at Fitch, just like at Moody’s. Standard & Poors downgraded the US government rating from AAA to AA + in 2011.

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