Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the United States of America (AA/Stable; S-1+/Stable) on 28 June 2021. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

The United States’ AA credit ratings reflect the country’s wealthy, competitive and diversified economy, its transparent and accountable institutional framework, as well as the US dollar’s unparalleled global reserve currency status, the latter which enables the United States to run ongoing fiscal and current-account deficits with more limited long-run debt sustainability concerns. The rating is, however, constrained by i) a modest growth potential outlook; ii) a high and rising level of government debt given ongoing significant spending programmes and economic support policies amid early economic recovery; and iii) the sovereign’s significant contingent liabilities from pension and health-care-related obligations. President Joseph R. Biden has pursued his post-election priority of strengthening the administration’s response to the Covid-19 crisis as well as to the crisis’ economic consequences, with proposal of a three-pillar recovery package including the American Rescue Plan (USD 1.9trn) – signed into law in March, the American Jobs Plan (outstanding proposal, which located bipartisan agreement in June for a downsized USD 1.2trn of infrastructure investment) and the American Families Plan (proposal of USD 1.8trn). Ongoing divisions between the two main political parties and forthcoming midterm elections of 2022 as well as presidential and congressional elections of 2024 represent risks on the horizon that could impact governance quality and the US’ institutional strengths. The national debt limit suspension set to expire on 31 July represents a nearer-term risk, placing the government on course for another heated summer of fiscal and debt negotiations, although Scope expects dialogue to sidestep technical default in the end, possibly by virtue of use of budget reconciliation.

The ratings/Outlooks could be downgraded in the event of: i) inappropriate use of the debt-limit instrument, raising the likelihood of technical default; ii) a further deterioration in the outlook of public finances, such as via further significant increases in the government debt ratio; and/or iii) evidence of a significantly reduced role of the US dollar as global reserve currency, leading to attenuated global demand for US treasuries. Conversely, the ratings/Outlooks could be upgraded if policy changes result in: i) the removal of the debt limit, especially if accompanied by replacement with alternative fiscal safeguards that enforce budget discipline but without raising likelihood for political brinkmanship and associated repayment risk; and/or ii) meaningful pro-growth reforms and/or fiscal discipline improve the potential growth outlook and stabilise the US’ public debt trajectory through the cycle.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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