S&P Global Ratings has recently affirmed its ‘AA+’ long-term and ‘A-1+’ short-term unsolicited sovereign credit ratings on the U.S. The outlook on the long-term rating remains stable. S&P added that the transfer and convertibility assessment remains ‘AAA’.
“The stable outlook indicates our expectation that although fiscal deficit outcomes won’t meaningfully improve, we don’t project a persistent deterioration over the next several years. This incorporates our view that changes underway in domestic and international policies won’t weigh on the resilience and diversity of the U.S. economy,” said the report.
Robust tariff income to offset any fiscal slippage
S&P added that broad revenue buoyancy in the U.S., including robust tariff income, will offset any fiscal slippage from tax cuts and spending increases. Trump signed the massive package of tax cuts and spending bill, also known as the ‘One Big Beautiful Bill Act’, into law in July. The bill, which delivered new tax breaks, also made Trump’s 2017 tax cuts permanent.
In tariffs, the U.S. reported a $21 billion jump in customs duty collections in July, but the government budget deficit still grew nearly 20 percent in the same month to $291 billion.
Net general government debt to approach 100 percent of GDP
The S&P report expects the U.S.’s net general government debt to approach 100 percent of GDP, given structurally rising nondiscretionary interest and aging-related expenditure. Bipartisan cooperation to strengthen the U.S. fiscal profile, namely, to meaningfully lower deficits and tackle budgetary rigidities, remains elusive.
However, S&P expects that cross-party negotiations on contentious issues, such as the government’s debt ceiling, which has been raised or suspended on almost 80 occasions since 1960, will continue to be resolved in a timely fashion, considering the severe consequences of not doing so on financial markets and on the economy.
Read: U.S. retail sales rise 0.5 percent in July despite softening labor market, higher prices
Downsides persist as deficit concerns mount
“We could lower the rating over the next two to three years if already high deficits increase, reflecting political inability to contain rising spending or to manage revenue implications from changes in the tax code,” it added.
The U.S.’s S&P credit rating could also come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or the independence of the Federal Reserve. This, in turn, could jeopardize the dollar’s status as the world’s leading reserve currency, a key credit strength.
Conversely, S&P said it could raise the rating over the next two to three years if effective and proactive public policymaking results in improved fiscal performance that substantially reduces general government deficits and puts the sovereign’s debt burden on a downward trajectory. Sustained long-term GDP growth, along with fiscal adjustments, could diminish the recently high annual increases in the general government’s net debt burden, strengthening creditworthiness.
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