It's not AAA anymore but that's a win.
- Key takeaways:
- US benefits from economic strength, reserve currency status
- High deficits, debt, and political polarization remain concerns
- 2024 election unlikely to significantly change fiscal outlook
- Deficits expected to remain high: 8.1% of GDP in 2024, 7.7% in 2025-26
- Government debt-to-GDP ratio projected to hit 124.4% by end-2026
- GDP growth forecast: 2.1% in 2024, slowing to 1.6% average in 2025-26
- Fed rate cuts expected: First cut in Sept 2024, total 175bps through 2025
- Negative rating action could stem from:
- Marked increase in government debt
- Decline in US dollar's reserve currency status
- Positive rating action possible with:
- Fiscal adjustment leading to medium-term debt reduction
- Improved governance
'Improved governance'... well, at least there is a low bar. Meanwhile, those deficits are massive relative to other trading partners. While they are boosting growth, you have to recoil at what they will be if/when the US runs into a recession.