S&P affirms U.S. AA+ sovereign rating with stable outlook, flags fiscal pressures

 S&P Global Ratings affirmed the United States' 'AA+' long-term and 'A-1+' short-term sovereign credit ratings on Friday, maintaining a stable outlook while warning that the country's fiscal trajectory remains its primary credit weakness despite a resilient economy and strong institutional framework.

The ratings agency said solid economic growth, broad-based government revenue collection—including continued tariff income—and credible monetary policy should help keep fiscal deficits high but broadly stable over the next several years. It expects net general government debt to continue climbing, surpassing 100% of GDP by 2029, up from 96% in 2025.

S&P said the U.S. continues to benefit from the wealth, resilience and diversity of its economy, effective institutional checks and balances, and the Federal Reserve's credibility, which underpins monetary policy flexibility and the U.S. dollar's position as the world's leading reserve currency. Those strengths, it said, help offset mounting fiscal pressures.

The agency projected the general government deficit will average 6.0% of GDP between 2026 and 2029, down from 6.9% in 2025 but still elevated by historical standards. It expects annual increases in net government debt to remain below 6% of GDP over the period, driven primarily by persistent federal deficits, while interest costs are expected to remain near 11.6% of government revenues.

S&P said the fiscal outlook will depend on the impact of the One Big Beautiful Bill Act, tariff and non-tariff revenue collection, and the pace of economic growth. While the legislation includes significant Medicaid spending cuts, increased defense and border security spending, extensions of the 2017 tax cuts, and permanent corporate tax provisions aimed at encouraging investment, the agency does not expect it to materially reduce the federal deficit on its own.

The agency also said meaningful tariff revenue from various trade measures should continue supporting the government's fiscal position. However, it noted that political dynamics ahead of the U.S. midterm elections could limit the administration's ability to pursue additional tax or spending initiatives.

S&P forecasts real GDP growth of 2.1% in 2026 and 1.9% in 2027, supported in part by continued artificial intelligence-related investment and business spending encouraged by tax incentives. It said the long-term productivity gains from AI remain uncertain.

The agency expects consumer price inflation to average 4.0% in 2026, up from 2.6% in 2025, before easing toward 1.9% by 2028, while noting that the Federal Reserve has maintained a cautious, data-dependent approach to monetary policy. It said the Fed's longstanding record of responding effectively to financial crises remains a cornerstone of the U.S. sovereign rating.

S&P also highlighted the government's strong external position, saying the dollar's dominant reserve currency status provides exceptional external liquidity and significant flexibility in financing fiscal and current account deficits. It expects the U.S. current account deficit to average 2.9% of GDP through 2029, despite elevated external debt metrics.

The ratings agency said the U.S. sovereign rating remains constrained by persistently high debt and deficits, reflecting limited bipartisan progress toward addressing structural fiscal imbalances. It warned that the rating could be downgraded over the next two years if deficits exceed expectations because of higher spending or weaker revenues, while an upgrade would require sustained fiscal improvement that puts government debt on a clear downward path.