US credit ratings agency out with an election special 7 Sept

  • both candidates' fiscal policy choices will be key for evolution of US credit profile over next administration
  • spending on non-discretionary social programmes projected to cause federal deficit to widen significantly over medium term

Say Moody's:

London, 07 September 2016 -- The outcome of the forthcoming US Presidential election will not impact the United States' Aaa stable credit rating, says Moody's Investors Service in a report.

That credit rating reflects the US sovereign's very high economic and institutional strength, strong debt affordability and its very low susceptibility to event risk given the role of the US dollar as global reserve currency and US Treasuries as global bond benchmark. These credit strengths indicate the credit rating is resilient to policy shifts or changes in government.

However, spending on non-discretionary social programs is projected to cause the federal deficit to widen significantly over the medium term, which will weaken the US' credit profile if not addressed. The choices made during the next US administration regarding fiscal policy and entitlement spending will have a greater impact on the medium-term credit profile of the United States than has been the case in the recent past, according to the report "Next President's fiscal policies will drive US's credit profile".

"The cost of Social Security, Medicare, and Medicaid will rise materially in the coming years as the population ages," said Sarah Carlson, a Senior Vice President at Moody's. "In the absence of policy and legislative changes, this will put more pressure on the US' fiscal profile over the rest of this decade and into the 2020s."

While each candidate's policy platform continues to take shape, at this point neither has yet discussed in detail how these medium-term fiscal pressures will be addressed. Hillary Clinton has indicated the type of revenue-based reforms she would consider to narrow the long-term shortfall in Social Security financing, but has not put forward concrete proposals. Donald Trump has not yet directly addressed these financing challenges.

Wider proposals for tax and healthcare reform could in some cases enhance fiscal pressures, given their uncertain impact on growth.

Both candidates have argued that infrastructure spending, which is low in the US compared to other developed economies, should be increased. This would be positive for the US if it were to be funded with new revenue sources, or through the reallocation of available resources. Higher spending would support economic activity in industries still recovering from the great recession and have positive spillover effects on other industries.

While other areas of policy, such as immigration and trade, have attracted significant comment during the election campaign, they will have less impact on the US' credit standing,