Introduction

Growing political instability means the U.S. will not regain its AAA rating with Fitch for the foreseeable future, according to Elliot Hentov, head of macro policy research at State Street Global Advisors.

Downgrade and Market Reaction

Global stock markets fell sharply on Wednesday after ratings agency Fitch downgraded the United States’ long-term foreign currency issuer default rating from AAA to AA+. This decision was made due to the “expected fiscal deterioration over the next three years” and an erosion of governance caused by “repeated debt-limit political standoffs and last-minute resolutions.”

However, big-name bank bosses and economists dismissed the decision, stating that it “doesn’t really matter.” Hentov also agreed, considering it as a non-“material development.”

Hentov’s Perspective

In an interview with AsumeTech’s “Squawk Box Europe,” Hentov described credit ratings as a slow-moving signal. He emphasized that the fiscal profile of the U.S. has worsened, governance of public debt has deteriorated, and the country can no longer be compared to other AAA-rated nations.

It is worth noting that Hentov was part of the Standard & Poor’s team that downgraded the U.S. government’s credit rating in 2011 due to political polarization.

Chances of Regaining AAA Rating

When asked if the U.S. is likely to regain its “risk-free” AAA rating from Fitch, Hentov gave a straightforward answer: “no.”

He added, “That’s the short answer, unless you imagine that U.S. politics takes a turn for a much more stable, predictable path.”

Jim Reid, head of global economics and thematic research at Deutsche Bank, noted that the current political situation differs from the one in 2011, when S&P downgraded the U.S. from AAA. Furthermore, the Federal Reserve’s commitment to keeping rates exceptionally low until at least mid-2023 adds a different dynamic.