Analyst Who Worked on S&P Downgrade in 2011 Predicts Fitch U.S. Ratings Cut Is Here to Stay

  • On Wednesday, global stock markets dropped significantly as Fitch downgraded the United States’ long-term foreign currency issuer default rating from AAA to AA+.
  • Hentov was on the team that downgraded the U.S. government’s credit rating in 2011, citing political polarization during a heated debate in Washington over raising the debt ceiling.
  • According to Hentov, one doesn’t need to be a sovereign or analytics genius to realize that the fiscal profile of the U.S. is much worse than before.

Elliot Hentov, head of macro policy research at State Street Global Advisors, predicts that due to the increasing political instability, the U.S. is unlikely to regain its AAA rating with Fitch in the foreseeable future.

On a recent Wednesday, global stock markets experienced a significant decline following a decision by ratings agency Fitch to downgrade the United States’ long-term foreign currency issuer default rating from AAA to AA+. The downgrade was attributed to “expected fiscal deterioration over the next three years” and a decline in governance highlighted by “repeated debt-limit political standoffs and last-minute resolutions.”

Top banking executives and economists were quick to dismiss the significance of the decision, claiming that it “doesn’t really matter.” Elliot Hentov concurred, expressing that he also did not consider it a “material development.”

In an interview with CNBC’s “Squawk Box Europe” on Thursday, Hentov emphasized that credit ratings serve as slow-moving indicators. He pointed out that it doesn’t require exceptional expertise to recognize the deteriorating fiscal profile of the U.S., along with the weakened governance responsible for managing public debt. He asserted that the current state of affairs is incomparable to that of any other AAA-rated nation.

Hentov’s name became familiar in 2011 when he was part of the Standard & Poor’s team that famously downgraded the U.S. government’s credit rating. The move was prompted by the political polarization witnessed during a prolonged and contentious dispute in Washington over raising the debt ceiling.

In May of this year, the world’s largest economy faced yet another standoff between the White House and opposition Republicans regarding the U.S. debt limit. This pushed the nation perilously close to defaulting on its bills. Fortunately, a last-minute deal was struck by President Joe Biden and House Speaker Kevin McCarthy to avert a crisis.

When asked about the likelihood of the U.S. reclaiming its coveted “risk-free” AAA rating from Fitch in the near future, Hentov responded with a straightforward “no.”

DBS, a financial institution, also weighed in on the matter, asserting that the short-term impact of Fitch Ratings’ U.S. downgrade would be minimal. They emphasized that unless there is a notable shift towards a more stable and predictable political trajectory in the U.S., the prospects of regaining the AAA rating remain slim.