Fitch Ratings affirms US at 'AA+' with stable outlook

The US sovereign rating is supported by structural strengths that include the size of the economy, high per capita income and a dynamic business environment, Fitch said in a release.

Fitch estimates the 2023 calendar year general government (GG) deficit reached 8.8 per cent of the gross domestic product (GDP), a large increase from 3.7 per cent of GDP in 2022.

It forecasts the 2024 GG deficit to narrow to 8 per cent of GDP as revenue growth accelerates towards the historical trend level, while spending narrows marginally, as cuts to discretionary spending measures included in 2024 appropriations process are implemented and some large one-off spending on deposit insurance in 2023 falls off.

The interest burden, however, will continue to grow given the higher debt burden and impact of higher rates.

In 2025, Fitch expects an 8.2 per cent of GDP deficit as a higher interest burden will continue to pressure the fiscal deficit with the net interest cost rising to 2.9 per cent of GDP—up from 1.8 per cent of GDP in 2022.

The rating agency expects the GG interest-to-revenue ratio to reach 10.3 per cent by 2025, compared with the forecast 'AA' median of 3.3 per cent.

The average Federal Reserve funds rate is projected to remain above 3 per cent over the next decade compared to historically low rates from 2008-2022, averaging just 0.8 per cent.

Fitch forecasts the GG debt-to-GDP ratio to rise over the forecast period, reaching 120.7 per cent by end-2025, up from 113.5 per cent at end-2023. The debt level was well over double the 'AA' median of 50.6 per cent of GDP at end-2023.

ALCHEMPro News Desk (DS)