This report does not constitute a rating action.
The results of the approaching U.S. presidential and legislative elections will play a key role in determining policy outcomes that inform S&P Global Ratings' view of sovereign creditworthiness. Fiscal challenges remain the sovereign's key weakness as net general government debt rises toward 100% of GDP.
What's Happening
In addition to the presidency, one-third of the Senate and the full House of Representatives are up for election. The composition of the new Congress and its openness to cross-party compromise will inform which legislation the next government can realistically pass. Measures that often need bipartisan congressional approval include the debt ceiling, government funding, tax and spending initiatives, and appointees to the presidential cabinet, judiciary, and Federal Reserve. Other key policy areas, such as trade, fall under the purview of executive order.
Why It Matters
S&P Global Ratings considers policy outcomes that affect key credit factors--not all policy initiatives. Policy that improves or worsens the nation's fiscal deficits and debt burden could most affect our unsolicited sovereign credit rating (AA+/Stable/A-1+), given the U.S.'s key credit weakness is its fiscal profile and given the difficulties of garnering bipartisan cooperation to strengthen it. Notwithstanding rising net general government debt, key credit strengths support the rating (see Background In Brief below).
What Comes Next
We expect the U.S. to maintain its credit strengths. Despite political polarization, the two parties in Congress broadly agree on the direction of foreign policy toward China, skepticism about trade agreements, and industrial policy to promote high technology sectors. We assume potential trade policy initiatives won't diminish the resilience of the U.S.'s fairly closed economy, which remains a leader in global innovation.
Monetary policy credibility meanwhile rests on the system's institutional foundation, which includes the Federal Reserve Board and the 12 Federal Reserve banks. We expect the hard-fought elections could lead to recounts and appeals to state-led verification processes, which, as in the past, would be resolved through established institutional mechanisms.
Concrete deadlines tend to generate congressional action and compromise, particularly amid fiscal policy differences. The debt ceiling suspension, for example, expires in early January 2025. We expect Congress to pass legislation, as on almost 90 occasions since the 1960s, once the "X-date" (when the Treasury runs out of space to deploy extraordinary measures to keep debt below the ceiling) approaches. The rating and outlook incorporate this assumption because politicians recognize the severe consequences on financial markets and the economy of not doing so.
The 2025 budgetary discussion isn't set to resolve until after the elections, with the government funded through Dec. 20. But politicians have also worked to resolve funding without a partial government shutdown in recent years, given its unpopularity and short-term economic hit.
Our fiscal projections assume general government deficits will remain around current levels regardless of the electoral outcome. No candidate is running on a platform of meaningful fiscal consolidation, largely because of political commitments to maintain key components of mandatory spending. This is notwithstanding inflexibility associated with rising ageing-related expenditure pressure, compressed discretionary spending, and a higher and rising interest burden.
However, at the end of 2025, various tax provisions under the 2017 Tax Cuts and Jobs Act will expire unless they are extended through legislative action. This provides an opportunity for Congress and the next administration to revisit the tax code and potentially undertake a broader fiscal discussion.
How the next government--executive and legislative--manages the tax code and spending initiatives will help shape the future deficit and debt trajectory that are key to U.S. creditworthiness.
Background In Brief
Key credit strengths of the U.S. include:
- Its diversified and resilient economy with solid growth that has pushed real per capita GDP above US$85,000;
- Extensive monetary policy flexibility by a credible, independent central bank, which supports global liquidity;
- Benefits of the sovereign's unique status as the issuer of the world's leading reserve currency; and
- Governing institutions that provide checks and balances, transparency, and decentralized decision-making.
Related Research
- Global Credit Conditions Q4 2024: Smooth Sailing, Or Eye Of The Storm? (Americas/EMEA Session), Oct. 2, 2024
- U.S. 'AA+/A-1+' Sovereign Ratings Affirmed; Outlook Remains Stable, March 27, 2024
| Primary Credit Analyst: | Lisa M Schineller, PhD, New York + 1 (212) 438 7352; lisa.schineller@spglobal.com |
| Secondary Contacts: | Roberto H Sifon-arevalo, New York + 1 (212) 438 7358; roberto.sifon-arevalo@spglobal.com |
| Joydeep Mukherji, New York + 1 (212) 438 7351; joydeep.mukherji@spglobal.com |
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