Ironically, the market now appears to be pricing in no recession.
At its most basic, credit ratings are meant to denote how safe it is to invest in the debt issued by a country or a company; essentially, it’s the issuer’s creditworthiness. Credit ratings are dominated by three independent agencies: S&P Global Ratings, Moody’s, and Fitch Ratings, all of which issue ratings on a similar sliding scale, starting with AAA as the top-rated investment that goes all the way down alphabetically to D, which typically denotes a default.
In August this year, one of the three rating agencies, Fitch, downgraded the US by one notch from AAA to AA +, which is still well above investment grade but is only the second time in history we have seen this.The US Congress has authorised trillions of dollars in spending over the last decades leading to the US debt level almost tripling since 2009.
in June this year, this led to a heated standoff between US President Joe Biden and Congress leaders as to whether there should be a suspension or raise of the debt ceiling. This standoff threatened to push the economy into crisis mode. But eventually, at the 11th hour, Congress approved a deal not to raise the debt ceiling limit to a specific level but instead suspend it entirely until 2025.
This formed the basis of Fitch’s decision to reduce its rating, as it cited the principal reasons as being the federal government’s rising debt burden and political instabilities surrounding the US debt ceiling arguments that have both gotten out of hand.Fitch has forecast that the US economy will enter a “mild recession” in the Q4 of 2023 and the beginning of 2024.