Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns 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 rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review on the United States of America (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA/ Negative Outlook; short-term local- and foreign-currency issuer ratings: S-1+/ Negative Outlook) on 18 June 2024.

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

For the updated rating report accompanying this review, click here.

The United States’ AA credit ratings reflect outstanding sovereign credit strengths, such as a wealthy, competitive and diversified economy, the largest economy globally in nominal terms and second largest on basis of purchasing power parity. In addition, the US benefits from the dollar’s continued role as the pre-eminent international reserve currency, bringing unrivalled strengths with respect to Treasury’s financing flexibility, and significantly reducing longer-run debt sustainability risk from comparatively higher government debt than many countries of the same rating grade. The United States’ ratings are furthermore anchored by sound, transparent and accountable economic institutions, including the globe’s foremost central bank in the Federal Reserve supporting macroeconomic and price stability, alongside one of the globe’s deepest capital markets.

The Negative Outlook assigned on the United States’ credit ratings indicates risk to the rating remaining skewed on the downside. This reflects: i) recurrent risk associated with the debt-ceiling instrument, which has seen phases of severe debt repayment distress for the federal government and dependence on last-minute congressional action to ensure repayment of the United States’ debt in full and on time; ii) a long-run rise in political polarisation and governance challenges, as reflected in repeated risks of government shutdown, voter polarisation ahead of an historic 2024 elections, and Supreme-Court adjudication being required earlier this year concerning the candidacy of the one of the two main presidential candidates; and iii) a persistent weakening of government finances, given a high and rising debt stock and comparatively elevated federal deficits foreseen for the forthcoming years.

Scope forecasts resilient economic growth of 2.7% in 2024 and 2.6% in 2025, and medium-run growth potential of a robust 2% a year. This remains roughly in line with our forecasts from previous credit reviews of the United States as Scope has consistently assumed a resilience of the American economy despite persistent price pressures and comparatively-tight funding conditions, diverging from market consensus calling for recession. After widening to an estimated 8.8% of GDP last year, from the effects of decelerating federal-revenue growth and significant spending measures, the general government deficit is expected to narrow slightly to 7.6% of GDP this year, before averaging a similar 7.6% of GDP a year from 2025-29, reflecting spending requirements of an ageing population alongside growing debt-servicing costs. Namely, net interest payments are seen reaching 11.4% of general government revenue by 2029, nearly doubling from the 6.7% at 2020 cyclical lows. The United States’ general government debt-to-GDP ratio stood at an estimated 122.1% last year (up 2.1pps from 2022 lows) and is seen remaining on a gradually-rising trajectory over the forthcoming years, concluding the forecast horizon to 2029 around 137.8%.

The credit ratings could be downgraded in the event of, individually or collectively: i) the conclusion of a rise in long-run risk from the debt limit; ii) weakening of governance, presenting adverse ramifications for the efficacy of government in its management of the economy and resolution of crises; iii) a weakening of the outlook for public finances, such as anticipation of material rises in the government debt ratio; and/or iv) evidence of a significantly reduced role for the US dollar as the global reserve currency, resulting in an attenuated global demand for US treasuries.

Conversely, the credit Outlooks could be revised to Stable if, individually or collectively: i) congressional or executive action sees the effective overruling, reform or removal of the debt limit – enhancing the United States’ fiscal framework and reducing or eliminating the risk of technical default from partisan use of the instrument; ii) sustained reduction in political polarisation enhances the efficacy of economic policy setting; and/or iii) economic and fiscal reforms place general government debt-to-GDP on a sustained declining trajectory.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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, Senior Director

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