I’m back after an awesome trip through Europe, and super excited to share some amazing photos with you in our upcoming financial review meetings slated for September and October. We explored ancient cities, devoured amazing cuisine, and had a blast driving across small towns through Spain and France. I hope to hear about your fun summer activities as well.
Today, let me shed light on the recent decision by Fitch Ratings to downgrade the US credit rating from AAA to AA+ (1). First off, what is Fitch credit rating? Fitch Ratings, is a leading credit rating agency that evaluates the creditworthiness of governments, corporations, and financial instruments. Using a letter-grade system ranging from AAA (indicating the highest credit quality) to D (representing default), Fitch helps investors understand the level of risk associated with their potential investments. The decision by Fitch Ratings to downgrade the US credit rating was driven by a combination of key factors I highlighted below, that raised concerns about the country’s fiscal and economic outlook:
Rising Public Debt: The United States has faced a steady increase in public debt in recent years. The growth of fiscal deficits and the significant reliance on borrowing have raised questions about the sustainability of the nation’s debt burden. To visualize and put into context-see below the reference chart, particularly the Congressional Budget Office (CBO) baseline forecast and the federal budget growing deficit. Since 2008 the US has spent a massive amount money and the growing interest rates are compounding the deficit.
Economic Headwinds: Despite periods of growth, the US economy encountered obstacles that impacted its trajectory. These challenges include trade imbalances, sluggish productivity growth, and uncertainties surrounding global economic conditions. The 2020 pandemic elevated these concerns. Inflation, currency, wage growth and employment can be interferences when assessing the stability of the economy.
Political Gridlock: The political landscape in the US has witnessed periods of polarization and gridlock that has grown more divided over the last decade, which has hindered the implementation of timely and effective policy measures such as approving the debt ceiling.
Geopolitical Risks: Ongoing geopolitical tensions and uncertainties on the international stage play a role in the US economy and, consequently, its creditworthiness.
While the downgrade indicates increased risks, it is important to note that the US remains a formidable economic force with robust institutional frameworks, access to capital markets, and a diversified economy.
As investors, it is essential to consider the broader context and potential implications of this rating action on your portfolios. We believe in diversifying your investment portfolio across asset classes and geographies can help manage exposure to potential volatility resulting from the downgrade. Focusing on a long-term investment perspective can mitigate the impact of short-term fluctuations, allowing you to capitalize on opportunities that may arise. As the situation evolves, staying informed about economic indicators, policy developments, and market trends is vital for making informed investment decisions.
My team and I are monitoring the situation closely and prepared to make appropriate adjustment with relation to your goals and risk levels. While challenges lie ahead, we believe that informed decision-making and strategic planning can position investors to thrive in a dynamic market environment.
To brighten things up below is picture of us in Spain.
Thank you for your trust in our expertise. If you have any questions or require assistance, please feel free to reach out.
