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 macro-economic 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 rating’s 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 for the United States of America (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA and Negative Outlook; short-term local- and foreign-currency issuer ratings: S-1+/ Negative) on 19 November 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, please see here.

The United States’ AA credit ratings reflect multiple credit strengths, including a wealthy, competitive and diversified economy, the largest economy globally by nominal terms and the second largest by purchasing power parity. In addition, US treasury securities maintain their position as the global safe asset while the dollar serves as the global reserve currency. These unique advantages provide exceptional flexibility for Treasury financing, and mitigate longer-run debt sustainability risks even with higher government debt than that of sovereign peers. The United States, furthermore, benefits from sound, transparent and accountable economic institutions, including the globe’s foremost central bank in the Federal Reserve supporting macro-economic and price stability, alongside one of the globe’s deepest and most liquid capital markets. Nevertheless, financial-system risks might be amplified medium- to long-run by forthcoming financial deregulation amid already stretched markets – especially as borrowers contend with higher financing rates for longer.

The Negative Outlook assigned on the United States’ credit ratings indicates risks for the credit rating remain skewed on the downside. This reflects: i) the 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 actions to ensure the repayment of the United States’ debt on time and in full; ii) a long-run rise in political polarisation and governance challenges, as reflected in the risk of government shutdowns, divisions following historic 2024 elections, and Supreme-Court adjudication around the candidacy of one of the two main presidential candidates; and iii) a persistent weakening of government finances, given the high and rising debt stock and comparatively elevated budget deficits foreseen for the forthcoming years.

The debt ceiling re-enters force on 2 January 2025 and extraordinary measures are to be used from this date on for several months next year.

This year Scope assumes an elevated general-government deficit of 7.6% of GDP, followed by an average of 7.7% of GDP for 2025-29. From its 2022 lows, the United States’ general government debt ratio is seen rising gradually over the forthcoming years, concluding a forecast horizon to 2029 around 134.2% of GDP, driven by persistent primary budget deficits and high net interest payments of an average of 13.4% of revenues over 2024-2026 before 12.3% of revenue on average from 2027 to 2029, nearly doubling the 6.7% recorded during the 2020 cyclical lows. Projections assume expansionary budget policies of the forthcoming second Donald Trump administration and the partial funding of tax-cut and spending-rise policies vis-à-vis tariff revenues as well as the downsizing of the US government.

Scope assumes resilient economic growth of 2.8% for this year before 2.7% in 2025 and 2.2% for 2026, and medium-run trend growth of a robust 2% a year. This forecast aligns with earlier credit reviews reflecting confidence in US economic resilience even after the fastest rise in rates on modern record. As of mid-2024, the Federal Reserve started rate reductions but since the 2024 elections, 10-year treasury yields have risen to 4.4% from 3.6% in early September.

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) the weakening of governance, presenting adverse ramifications for the efficacy of government in its management of the economy and the resolution of crises, such as affecting actions of the Federal Reserve; iii) a weakening of the fiscal outlook, for example, due to significant 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 – strengthening fiscal governance and reducing or eliminating partisan use of the instrument; ii) sustained reduction of political polarisation enhances the efficacy of economic policy setting; and/or iii) comprehensive 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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