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Fitch lowers US credit outlook to ‘negative’ on COVID-19, election uncertainty but retains AAA rating

Friday’s Fitch Ratings became more negative about the outlook for gold-plated US credit. The high budget deficit and debt were already rising in the medium term before the massive economic shock caused by the coronavirus broke out, the rating agency said by giving the US a “negative” perspective while maintaining an AAA rating. The U.S. had the highest government debt of any AAA-rated government entering the crisis, and Fitch expects government debt to exceed 130% of GDP by 2021. The U.S. government’s rating is supported by structural strengths, including the size of the economy, high per capita income, and a dynamic business environment. Fitch believes that the US debt tolerance is higher than that of other “AAA” countries. Fitch said it expects negative real interest rates and continued smooth monetary policy with the Federal Reserve to provide some support for government debt dynamics. The report also looked ahead to the November elections. “The likelihood of Democrats overturning the Republican majority in the Senate has shifted in their favor over the past quarter, but both sides are unlikely to gain a majority of 60 seats,” Fitch analysts wrote. “Continuing policy hang is a risk. Political polarization can weaken institutions and diminish the potential for two-way cooperation, hampering efforts to address structural problems (including some highlighted by the pandemic and protests) , but also because of longer-term tax challenges. “