Why us downgraded

The U. Fitch considers U. However, the Outlook has been revised to Negative to reflect the ongoing deterioration in the U. High fiscal deficits and debt were already on a rising medium-term path even before the onset of the huge economic shock precipitated by the coronavirus. They have started to erode the traditional credit strengths of the US. Financing flexibility, assisted by Federal Reserve intervention to restore liquidity to financial markets, does not entirely dispel risks to medium-term debt sustainability, and there is a growing risk that U.

Although a massive policy response has prevented a deeper downturn - such that Fitch expects a less severe contraction in the U. Health and social security costs are still set to rise over the medium-term while federal revenue in FY19 was close to its long-term average as a share of GDP.

Spending rose by USD1. In the three months since this CBO estimate was published, Congress has made no major addition to the support packages. Amid a borrowing surge, borrowing costs have fallen, with the year treasury bond yielding 0. The effective interest rate on the federal government debt stock fell by 0.

In line with our assumption that the Federal Reserve will hold its policy rate at 0. But it is uncertain whether very low market rates will persist once growth and inflation pick up. The future direction of fiscal policy depends partly on November's presidential and congressional elections. The odds of Democrats overturning the Republican majority in the Senate have shifted in their favor over the past quarter, but it is unlikely that either party will achieve a seat majority.

This clarification should limit any impact on money market funds and other short-term lending markets. News reports about the U. As a result:. Credit unions may experience temporary balance sheet fluctuations.

Market conditions may lead to unusually large deposit inflows or draws on existing lines of credit. NCUA encourages credit unions to consider all reasonable and prudent actions that could help meet the critical financial needs of their members.

If the government dishes out wisely to reduce scarring in the labor market, prevent social and political unrest, and to set up the economy for a faster rebound, then it could be money well spent, eventually enhancing its credit credentials.

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