The ratings on US sovereign debt is being held down by rising deficits and policies focused too much on the short-term, S&P Global Ratings said on Tuesday.
The ratings agency said the strengths of the US economy and policy structure, as well as few risks to trade in the near term despite rising trade tensions, prompted it to retain the “AA+” rating on US debt, with a stable outlook.
However, “high general government debt, rising deficits, relatively short-term-oriented policymaking, and uncertainty about policy formulation constrain the ratings,” S&P said.
While trade tensions and the exchange of tariffs with key trading partners are not expected “to meaningfully hit the US economy in the near term,” S&P said the uncertainty could delay investments and offset the benefits of last year’s tax cut.
The US economy is expected to grow by about 3 percent this year and 2.5 percent next year following 2.3 percent growth last year, S&P said.
However, political divisiveness has hampered the US government’s ability to pass needed legislation.
The US lost its “AAA” rating in 2011, following battles among lawmakers in Washington over whether to lift caps on US sovereign borrowing, raising the likelihood of a US default.
The agency said it expects budget and debt ceiling debates to be resolved at the last minute as they have been in recent years.
“In our view, disagreement across and within political parties has resulted in slower decisionmaking and has limited the government’s ability to enact forward-looking legislation, particularly fiscal policy,” S&P said. “These factors — along with the government’s high level of debt — constrain the ratings.”
Earlier on Tuesday, the US Congressional Budget Office said US sovereign debt is expected to reach 78 percent of GDP this year, its highest level since World War II, and 152 percent by 2028, the highest in history, while revenues are held down by the massive corporate tax cut approved last year.
S&P said the midterm congressional elections in November and the next presidential electoral cycle in 2020 “appear to limit room for negotiation” in Washington.
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