Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or minimum every six months in the case of sovereign, sub-sovereign and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key ratings assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the United States of America (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA/Stable; short-term local- and foreign-currency issuer rating: S-1+/Stable) on 16 May 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

The United States of America’s long-term AA/Stable Outlook ratings are underpinned by credit strengths: i) the country’s wealthy, competitive and diversified economy, as the largest economy of the globe in nominal terms; ii) the US dollar’s role as the preeminent international reserve currency, bringing unrivalled financing flexibility; iii) sound, transparent and accountable economic institutions, such as reflection of a strong central bank in the Federal Reserve and leading global Treasury issuing the international benchmark risk-free security; and iv) one of the world’s most advanced and deep capital markets, along with a well-capitalised banking system with robust profitability and strong financial oversight framework.

Credit challenges associate with: i) significant deficits expected to hold the US’ general government debt-to-GDP ratio at an elevated level medium run, even as elevated inflation supports a degree of reduction of this debt ratio, and significant contingent liabilities presenting longer-run debt challenges; ii) misuse of the debt-ceiling instrument, with rising political polarisation and more elevated federal deficits over forthcoming years heightening risk surrounding debt-ceiling crises; iii) governance risk associated with political polarisation; iv) financial stability risks related to heightened financial market volatility under context of monetary policy tightening; and v) weaknesses of the external sector from recurrent current account deficits.

Scope expects US growth to moderate this year, to 2.3% in 2022 before 2.5% in 2023, from 5.7% in 2021 – as inflation remains exceptionally high, in part due to global consequences of the Russia-Ukraine war, undermining household purchasing power.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced.

The ratings/Outlooks could be downgraded in the event of, individually or collectively: i) a further weakening in the outlook of public finances, such as via anticipation of further significant increases of the government debt ratio; ii) inappropriate use of the debt-limit instrument, raising likelihood of technical default; iii) weakening in governance, with negative consequences for effectiveness of government in management of the economy and resolution of crises; and/or iv) evidence of a significantly reduced role of the US dollar as global reserve currency, leading to lowered global demand for US treasuries.

Conversely, the ratings/Outlooks could be upgraded if policy changes result in: i) meaningful reform improving the nation’s fiscal policy framework such as removal of the debt limit and possible replacement with alternative fiscal safeguards, enforcing prudent fiscal policy making; ii) reforms that improve the potential growth outlook, placing the public debt ratio on a sustained declining trajectory; and/or iii) improvements of governance and/or reduction of political polarisation improve effectiveness of economic policy making.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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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