New York, April 25, 2018 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of United States of America's (US') Aaa long-term issuer
and senior unsecured ratings. The outlook remains stable.
The affirmation of the US' Aaa rating reflects the US' exceptional
economic strength, the very high strength of its institutions and
its very low exposure to credit-related shocks given the unique
and central roles of the US dollar and US Treasury bond market in the
global financial system. Together, these features counterbalance
the US' lower -- though still high -- fiscal strength.
The key driver for the stable outlook is Moody's view that the diversity,
dynamism, and competitiveness of the US economy, along with
the US dollar's status as the preeminent international reserve currency
and very large size and depth of the US Treasury market, offset
rising fiscal pressures stemming from ageing-related entitlement
spending, higher debt service payments, and recent policy
actions that will likely reduce future revenues and increase expenditures.
The US' long-term country ceilings for local- and
foreign-currency bond and bank deposits remain unchanged at Aaa.
Its short-term country ceilings for foreign-currency bonds
and bank deposits remain unchanged at Prime-1 (P-1).
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
RATIONALE FOR Aaa RATING
EXCEPTIONAL ECONOMIC STRENGTH, VERY HIGH INSTITUTIONAL STRENGTH,
AND VERY LOW EXPOSURE TO CREDIT RELATED SHOCKS OFFSET LOWER -- THOUGH
STILL HIGH -- FISCAL STRENGTH
Moody's sovereign ratings reflect its assessment of economic,
institutional and fiscal strength, along with susceptibility to
potential shocks. In Moody's view, the US' combination
of exceptional economic strength, very high institutional strength
and extremely low exposure to credit-related shocks continues to
support its Aaa rating, notwithstanding a slight decline in institutional
strength and the more material ongoing erosion in fiscal strength.
The very high degree of diversification, dynamism, competitiveness
and rich resource endowment reflected in the US economy's large
scale, very high income levels and relatively supportive demographic
trends underpin the US' very high economic strength. Moody's
generally views the relative size of an economy as a reasonable proxy
for economic diversification, which helps to mitigate potential
sector-specific shocks. By this standard, the US is
exceptional. With nominal GDP of close to $20 trillion in
2017, the US economy is by far the world's largest in nominal
terms.
The US' dynamism and competitiveness are reflected in its global competitiveness
rankings, such as those of the World Economic Forum's Global Competitiveness
Index and the World Bank's Ease of Doing Business report. These
attributes reflect the flexibility of the US labor market, mobility
of its population, high level of entrepreneurial activity,
presence of globally competitive universities and research institutions,
and relatively low regulatory and tax burden. Finally, the
country's long track record of maintaining high competitiveness and a
conducive business environment has produced meaningful income gains over
time. At about $58,000 GDP per capita in Purchasing
Power Parity (PPP) terms in 2016, the US' very high average
income level implies higher economic shock absorption capacity than in
many other Aaa-rated sovereigns.
The US' economic prowess is supported by the very high strength
of its institutions. Worldwide Governance Indicators suggest that
key institutional features, including the effectiveness of government,
rule of law and control of corruption, rank very highly, albeit
slightly below those of the US' Aaa-rated peers. The
credibility and effectiveness of monetary policymaking is a key pillar
of the US' institutional strength. Fiscal policymaking,
however, is less robust than in many Aaa-rated peers and
experience in recent years suggests that the US' legislative and
executive branches will be challenged to undertake a pronounced shift
in fiscal policy in order to sustainably address rising fiscal pressures.
Nevertheless, overall the US' institutions remain --
from a credit perspective -- close to first order.
Fiscal strength is of a lower order but still high. As a result
of interventions to support the financial system and economy during the
global financial crisis and the resulting recession, over the past
decade cumulative fiscal deficits have driven the US federal government
debt to one of the highest levels globally and the highest level among
Aaa-rated sovereigns. However, the US' fiscal
strength remains high relative to the Moody's rated universe of
sovereigns. Moody's assessment of the US' fiscal strength
incorporates the rating agency's expectation that federal government deficits
will continue to widen somewhat over the medium term, contributing
to a higher debt burden and lower debt affordability.
The strength of the US economy has, over the course of the twentieth
century, helped the US establish and maintain the dominant positions
of its currency and financial markets in the global financial system.
Today, the US dollar is the world's preeminent reserve currency,
with over 60% of global foreign exchange reserves held in dollar-denominated
assets. Meanwhile, with total public debt outstanding of
about $15 trillion, the US Treasury bond market is by far
the deepest and most liquid government securities market in the world.
A significant proportion of US Treasuries are held by non-residents,
reflecting their preeminent safe-haven status.
The global benchmark roles of the US dollar and US Treasury market insulates
the US economy, bond market, and financial system from many
downside sovereign risks. In particular, they remove all
but the most extreme liquidity risks from the US government securities
market, despite a rising debt burden, and grant the US effective
immunity from government liquidity and balance-of-payment
risks.
RATIONALE FOR STABLE OUTLOOK
SIGNIFICANT AND UNIQUE CREDIT STRENGTHS COUNTERBALANCE EMERGING RISKS
FROM ERODING FISCAL STRENGTH
Moody's sees little prospect of the US' economic strength
diminishing materially in the foreseeable future. Even if the rate
of growth continues its secular decline, the economy's other
attributes will continue to support overall economic strength.
The economy's relatively quick recovery from the global financial
crisis illustrated its resilience even to a very severe shock, and
while a further shock -- for example to trade flows -- could
undermine growth, the underlying resilience of the economy is unlikely
to be impaired. While the US economy is not immune to the risk
of gradual erosion, as suggested by declining growth potential and
perhaps by the emerging aversion to open trade and foreign labor,
Moody's expects it to remain a highly supportive feature of the
country's credit profile for many years to come.
Similarly, there is no near-term prospect of the benchmark
status of the US dollar and US Treasury market being undermined.
Their global safe-haven status was reinforced during the global
financial crisis, and while the US Treasury market experiences rises
and falls in yields, the likelihood of sharp yield spikes that signal
prolonged liquidity pressures is far below that which tends to be experienced
by other sovereigns with similar fiscal characteristics.
These continuing strengths offset the ongoing erosion of the US'
fiscal strength. Looking ahead over the next decade, the
US faces adverse fiscal dynamics due to rising ageing-related entitlement
spending, higher debt service payments, and recent policy
actions that will likely reduce future revenue intake and increase expenditure.
As a result, Moody's current baseline forecast is that in
the absence of a shift in policy the sovereign's debt burden and debt
affordability metrics will weaken further over the coming decade.
WHAT COULD CHANGE THE RATINGS DOWN
Moody's would consider changing the outlook on and ultimately moving
the US' rating if it were to conclude over the coming years that
US policymakers do not have the capacity to respond decisively to mitigate
the country's adverse fiscal dynamics over the medium term.
On the basis of current policy settings, Moody's estimates
that the federal government debt burden and interest-to-revenues
ratio will rise by around 30 percentage points and 15 percentage points
respectively over the next decade. Absence of effective policy
action over the coming years to arrest such a rise would signal a further
erosion of both fiscal and institutional strength, which would weigh
on the sovereign credit profile, particularly if Moody's were
to conclude that this would likely undermine the US' exceptional
economic strength and the unique and central roles of the US dollar and
US Treasury bond market in the global financial system.
GDP per capita (PPP basis, US$): 57,608 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.5% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.1%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -4%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -2.4% (2016 Actual)
(also known as External Balance)
External debt/GDP: 87.2% (2016 Actual)
Level of economic development: Very High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983
On 23 April 2018, a rating committee was called to discuss the rating
of the United States of America, Government of. The main
points raised during the discussion were: The issuer's economic
fundamentals, including its economic strength, have not materially
changed. The issuer's institutional strength/framework have slightly
decreased. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed. The issuer's
susceptibility to event risks has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
LIST OF AFFECTED RATINGS
Outlook Actions:
..Issuer: United States of America, Government
of
....Outlook, Remains Stable
Affirmations:
..Issuer: United States of America, Government
of
.... Issuer Rating, Affirmed Aaa
....Senior Unsecured Notes, Affirmed
Aaa
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
William Foster
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
