Fitch Affirms United States AAA Rating On Financial Flexibility

Fitch Ratings affirmed the AAA credit rating of the United States due to the strength of the country’s economy, capital markets and status as the issuer of reserve currency around the world.

The credit rating agency said the United States long-term Issuer Default Ratings (IDRs) are stable. Fitch Ratings also affirmed that country’s short-term foreign currency IDR at F1+. The United States holds AAA ratings on long-term foreign and local currency IDRs.

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Fitch Ratings Senior Director Charles Seville and Managing Director Ed Parker wrote in their report that the United States’ AAA rating was strengthened by its “unparalleled financing flexibility as the issuer of the world’s pre-eminent reserve currency and benchmark fixed-income assets.” They also noted that the United States has the deepest and most liquid capital markets.

United States deficit is expected to narrow further

Seville and Parker forecasted that the United States federal deficit will narrow further in 2015and 2016 from the 2.8% of GDP last year. According to Seville and Parker, the country’s medium-term deficit outlook improved a bit due to the combination of economic strength and lower-than-expected interest rates. The inflation of healthcare costs also slowed down.

Fitch Ratings estimated that the country debt would start to decline this year from a peak of 100% of GDP last year. The agency emphasized that the United States debt will likely increase again in 2019 if there are no policy changes or normalization of interest rates.

Fitch Ratings noted that the Congress and White House have different budget proposals for the fiscal 2016. The Republicans in the Congress want to eliminate the country’s deficit over the next decade. On the other hand, President Barack Obama’s budget proposal calls for a milder consolidation.

The credit rating agency is expecting a small progress on reforms proposed by either the Congress or White House despite cross consensus on topics such corporate tax reform.

“The U.S. has achieved a rapid fiscal consolidation based on economic recovery and tight spending limits, but further deficit narrowing will be more hard-won,” noted Seville and Parker in their report.

The United States has better growth prospects

Fitch Ratings said the United States is growing faster, and it has better growth prospects than most of the developed countries. The U.S. achieved a 2.4% growth in 2014. The credit rating agency estimated that the country will grow 3% this year, and it will decelerate slightly in 2016.

Fitch Ratings said the U.S. economy can withstand gradual tightening of monetary policy. The Federal Reserve recently indicated its intention to implement a gradual approach to raising interest rates. The credit rating agency expected policymakers to increase interest rates in the third quarter of 2015.