Fitch Ratings affirmed its AAA rating for US government-issued debt on Monday, a huge vote of confidence for the credit worthiness of the country.
In addition, the credit agency said that the the current Rating Outlook is “Stable”.
Fitch said in its rating note that the ‘AAA’ rating is “underpinned by the sovereign’s unparalleled financing flexibility as the issuer of the world’s pre-eminent **reserve currency and benchmark fixed-income asset, and as home to the world’s deepest and most liquid capital markets.”
** A reserve currency is a hard currency that governments and central banks across the globe hold as part of their currency reserves.
The agency expects the federal government deficit to narrow further in 2015 and 2016 from the 2.8% of GDP recorded in 2014. It projects general government debt to “start trending down in 2015 from a peak of 100% of GDP in 2014.”
However, reforms to mandatory spending and taxation measures will be necessary to stop the budget deficit from rising again after 2018.
The US economy is forecast to expand by 3% in 2015, but decelerate “slightly” next year, the agency added.
“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.
Scenarios that could knock the rating down
The agency pointed out some scenarios that could cause the US rating to be knocked down.
Fitch said:
“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,”
Another future development that could lead to negative rating action is 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”
S&P has not given the US its AAA status back yet
On Aug. 5, 2011 credit-rating agency Standard & Poor’s downgraded U.S. debt on from AAA to AA+. Two years later the S&P upgraded the U.S. debt rating to stable, but it has not given the country its AAA status back yet.