S&P affirms U.S. credit rating as tariff revenue to offset fiscal slippage

[Credit Rating. The word Credit Rating in the background of the US dollar. Financial Trustworthiness and Creditworthiness Evaluation Concept]
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S&P Global has affirmed its 'AA+' sovereign credit rating of the U.S. as it expects "meaningful" tariff revenue to help offset any fiscal slippage from President Donald Trump's tax and spending bill.

The rating agency said the outlook remains stable, reflecting its expectations of continued resilience in the U.S. economy and "although fiscal deficit outcomes won't meaningfully improve, we don't project a persistent deterioration over the next several years."

S&P expects average annual real GDP growth to decelerate during 2025 and 2026 to 1.7% and 1.6%, respectively, and should average 2% in 2027-2028.

Net general government debt is expected to approach 100% of GDP, given rising nondiscretionary interest and aging-related expenditure. "Bipartisan cooperation to strengthen the U.S. fiscal profile - namely to meaningfully lower deficits and tackle budgetary rigidities - remains elusive."

S&P said it could downgrade its U.S. rating over the next 2-3 years if already high deficits increase, or if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or the Federal Reserve's independence.

"This, in turn, could jeopardize the dollar's status as the world's leading reserve currency - a key credit strength," the agency warned.

To note, the U.S. saw a $21B jump in customs duty collections last month from Trump's tariffs. But the budget deficit [https://seekingalpha.com/news/4484102-us-budget-balance-swings-to-wider-than-expected-deficit-in-july] still grew 19% Y/Y in July to $291B.

According to estimates [https://taxpolicycenter.org/features/tracking-trump-tariffs] by think tank Tax Policy Center, Trump's tariffs could raise about $2.9T for fiscal years 2026 through 2035, with $339B raised in 2026. "These policies will impose a burden of about $2,700 in 2026 for the average taxpayer."

As for other rating agencies, Fitch's credit rating for the U.S. is 'AA+' with a stable outlook (since 2023). In May, Moody's downgraded [https://seekingalpha.com/news/4449791-moodys-downgrades-u-s-due-to-ever-rising-debt-high-interest-payment-ratios] U.S. credit ratings to Aa1 from Aaa and changed the outlook to stable from negative.

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