Fitch Ratings in New York, United States.
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Rising political instability means the US will not regain its AAA rating with Fitch in the near future, said Elliot Hentov, head of macro policy research at State Street Global Advisors.
Global stock markets fell sharply on Wednesday after ratings agency Fitch downgraded the rating of long-term US foreign currency issuer bonds from AAA to AA+, citing “expected fiscal deterioration over the next three years” and an erosion of governance in light of “repeated political deadlocks and last-minute resolutions to limit debt.”
Bank bosses and big-name economists dismissed the decision, saying it “doesn’t really matter,” and Hentov agreed that he didn’t think it was a “material development.”
“The ratings are basically a slow-moving signal,” he told CNBC’s “Squawk Box Europe” on Thursday.
“I don’t think it takes a great sovereign and analytical genius to understand that the US fiscal profile is much worse than it has been, that the governance responsible for the national debt is much worse than it has been, and that it’s honestly not comparable. to any of the other AAAs out there.”
Hentov was part of the Standard & Poor’s team that famously downgraded the U.S. government’s credit rating in 2011, citing political polarization after a lengthy and charged row in Washington over raising the debt ceiling.
In May this year, a new standoff between the White House and opposition Republicans over raising the U.S. debt limit once again brought the world’s largest economy to the brink of defaulting on its bills, before President Joe Biden and Chairman of House of Representatives Kevin McCarthy struck one last time. minute deal.
Asked whether the US is likely to regain its ‘risk-free’ AAA rating from Fitch any time soon, Hentov responded with a resounding ‘no’.
“That’s the short answer, unless you imagine American politics taking a turn toward a much more stable, predictable path.”
Jim Reid, head of global economics and thematic research at Deutsche Bank, said that despite the debt ceiling parallels, S&P’s rating downgrade in August 2011 came against a very different political backdrop.
“The debt ceiling battle and the credit downgrade took place simultaneously. Moreover, the S&P was the first to downgrade the US rating from AAA and the immediate shock was much deeper than it could have been if a second agency did so twelve years later “, he said.
Meanwhile, the Federal Reserve had cut rates and at its August policy meeting pledged to keep rates at “exceptionally low levels until at least mid-2023,” Reid emphasized in an email on Wednesday.