ALERTS HISTORY

 02-Apr-2019 06:33:18 PM - FITCH AFFIRMS THE UNITED STATES AT 'AAA'; OUTLOOK STABLE

Fitch Affirms The United States at

'AAA'; Outlook Stable - Reuters News
02-Apr-2019 06:33:18 PM
(The following statement was released by the rating agency)

Fitch Ratings-New York-April 02: Fitch Ratings has affirmed The United States of America's Long-Term Foreign-
Currency Issuer Default Rating (IDR) at 'AAA'/Stable Outlook.

A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The U.S. sovereign rating is supported by structural strengths that include the size of the economy, high per capita
income, and a dynamic business environment. The U.S. benefits from issuing the dollar, the world's preeminent reserve
currency, and from extraordinary financing flexibility, given that the U.S. Treasury market is the deepest and most liquid
asset market in the world. While there has been a recent loosening in fiscal policy, Fitch considers U.S. debt tolerance
to be higher than that of other sovereigns. However, rising deficits and debt could eventually test these credit strengths
in the absence of reform.

A loosening in fiscal policy has helped economic growth, but has driven a widening in the deficit. The federal
government deficit was 3.8% of GDP in FY18, up from 3.4% of GDP, with revenue falling to 16.5% of GDP, 0.5
percentage points (pp) of GDP below the 20-year average, as a result of the Tax Cuts and Jobs Act. While revenue
declines have bottomed out, primary spending is expected to grow by 0.3pp of GDP in FY19 (mandatory 0.2pp and
discretionary 0.1pp). Available data suggests that the general government recorded a deficit of 4.0% of GDP on an IMF
GFS basis in 2018, with general government debt reaching 98.9% of GDP.

Fitch's longer-run debt sustainability analysis suggests that general government debt could exceed 120% of GDP by
2028, lower than the level expected at our last review, as the projection of long-term interest rates is somewhat lower.
This projection assumes that a gradual 1pp increase in marginal borrowing costs from 2018 levels pushes up the
interest bill, while the primary deficit widens by 2pp of GDP over 10 years, and growth trends down to its potential rate
just below 2%. In common with some other developed countries, the U.S. faces longer-term pressure on public
spending driven largely by growing mandatory spending on pensions and healthcare as the population ages.

Running a large deficit at this point in the economic cycle puts public finances in a weaker position to confront any future
economic downturn. Ten years into an economic expansion, Fitch forecasts the U.S. to grow faster than most advanced
economies in 2019-20, although we have lowered the growth forecast to 2.3% in 2019 and 1.9% in 2020. Global growth
prospects have weakened over the past quarter, but the U.S. economy is less exposed to slower trade growth than
most of its peers. Up to 12% of U.S. imports are currently subject to tariffs, and retaliatory tariffs have affected particular
sectors, but without sizeable growth impacts.

Growth reached 2.9% in 2018 and the growth rate was well above that in 2Q18 and 3Q18, driven by the fiscal stimulus
from the Tax Cuts and Jobs Act. Sub-4% unemployment and rising household incomes (nominal income grew 5% in
2018) are supporting consumer spending. Investment is also growing. Fitch's assessment of longer-term potential
growth rates, which informs its debt dynamics analysis, is little changed at 1.9%. However, against the backdrop of a
tight labour market, which could imply inflationary pressure, both core and headline PCE inflation are below the 2%
targeted by the Federal Reserve.

Government borrowing costs will rise more slowly over the short term than Fitch expected at its last review. The outlook
for the Federal Reserve's policy rate has changed since its January 2019 meeting, which noted the tightening in
financial conditions and global growth uncertainties. Fitch now expects one further 25bps hike in 2019 and one in 2020
from the present level of 2.25%-2.5%, a slowdown in the pace of monetary policy tightening from the 175bps in
tightening delivered over the two years to December 2018. The Fed will also maintain a larger balance sheet, slowing
the run-off in its bond holdings and stopping this altogether in September, thereby maintaining more accommodative
financial conditions.

The Bipartisan Budget Act of 2018, which set spending levels for the federal government, expires at the end of FY19
(end-September 2019). Fitch assumes that Congress will authorise discretionary spending increases in line with
nominal GDP growth over FY20. This implies that the spending caps demanded in the Budget Control Act (2011), which
under current law are reimposed in January 2020 and would result in a cut in primary spending of around 0.4% of GDP,
are overridden as they have been under previous budget deals. Longer-term prospects for fiscal consolidation appear to
have waned.

The longest recorded federal government shutdown, at 35 days, ended with congressional agreement to fund the
government through September 2019. President Trump's declaration of a national emergency in support of his bid for
more resources for border security highlighted the difficulty in achieving policy consensus between the executive and
both houses of Congress and, in Fitch's view, evidences weaker policy coherence than rated peers. Nevertheless, Fitch
expects the debt limit, which was reimposed in early March, to be raised before the so-called "x date" in late September
or early October, when the CBO estimates that the Treasury will exhaust its scope for extraordinary measures to
finance itself without breaching the debt limit.

The U.S. runs a significant and widening current account deficit of 2.6% of GDP in 2018, while the median 'AAA'
sovereign runs a substantial surplus. The deficit will likely increase on the strength of domestic demand. However, the
current account deficit is a corollary of capital inflows from foreign investors, including into sovereign assets. The
sovereign, banks and the nonbank private sector alike are all net external debtors. The net external debtor position of
the U.S. is a credit weakness relative to the 'AAA' median.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)

Fitch's proprietary SRM assigns United States a score equivalent to a rating of 'AAA' on the Long-Term Foreign-
Currency (LT FC) IDR scale.

Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year
centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a
forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating,
reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES

The current Rating Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate
developments with a material likelihood, individually or collectively, of leading to a downgrade. However, future
developments that may, individually or collectively, lead to negative rating action include:

--A larger or more rapid rise in government deficits and debt/GDP ratio than Fitch forecasts; for example, if economic
policies were unresponsive to or exacerbated medium to long term deficit and debt trends, which are already being
pressured by spending related to both population aging and the normalisation of interest rates.

--A deterioration in the coherence and credibility of economic policymaking or a negative shock that erodes the role of
the U.S. dollar as the preeminent global reserve currency and reduces financing flexibility and debt tolerance.

KEY ASSUMPTIONS

Economic assumptions are consistent with the forecasts in the March 2019 Global Economic Outlook.

Fitch assumes that the federal debt limit, which was reimposed in March 2019, will be suspended again or raised in due
course before the Treasury exhausts its extraordinary measures and capacity to fund the government.

Fitch has affirmed the following:

--Long-Term Foreign-Currency IDR at 'AAA'; Outlook Stable;

--Long-Term Local-Currency IDR at 'AAA'; Outlook Stable;

--Short-Term Foreign-Currency IDR at 'F1+';

--Short-Term Local-Currency IDR at 'F1+';

--Country Ceiling at 'AAA';

--Issue ratings on long-term senior unsecured local-currency bonds at 'AAA';

--Issue ratings on short-term senior unsecured local-currency bonds at 'F1+'.

Contact:

Primary Analyst

Charles Seville

Senior Director

+1-212-908-0277

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

Secondary Analyst

Todd Martinez

Director

+1-212-908-0897

Committee Chairperson

Tony Stringer

Managing Director

+44 20 3530 1219

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

Country Ceilings Criteria (pub. 19 Jul 2018)

https://www.fitchratings.com/site/re/10037793

Sovereign Rating Criteria (pub. 19 Jul 2018)

https://www.fitchratings.com/site/re/10037181

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/site/dodd-frank-disclosure/10068351

Solicitation Status

https://www.fitchratings.com/site/pr/10068351#solicitation

Endorsement Policy

https://www.fitchratings.com/regulatory

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