Fitch maintains the US status of ‘AAA’ in its latest US Long-Term Foreign-Currency Issuer Default Rating (IDR) report, but gives the rating a negative outlook.
The rating agency believes the US has a higher debt tolerance than other ‘AAA’ sovereigns, while also pointing out threats to the public finances and debt trajectory.
The general government deficit in 2021 will be 14 percent of GDP, down slightly from the predicted 14.9 percent in 2020.
The key characteristic of Fitch’s baseline budget predictions is a relative tightening of fiscal policy as pandemic relief funding fades.
The general government deficit is expected to shrink to 7% of GDP in 2022, according to Fitch.
Inflation is expected to decline between 2022 and 2023, according to Fitch, however upside risks from commodity prices, housing, and supply constraints remain.
Given the still-high gap in the number of jobs compared to February 2020, unemployment numbers imply a still-low labor force participation rate.
In 2023, Fitch expects the Fed to begin raising its policy rate.
The rating agency’s hopes for monetary policy adjustment are bolstered by strong inflation statistics, which favors the current risk-off sentiment. Despite this, S&P 500 Futures are showing minor increases as of early Wednesday morning in Asia./n
