Goldman Sachs strategists shrugged off Fitch’s ratings change.
Richard Drew/AP
Fitch downgraded US debt from AAA to AA+ on Tuesday, but Goldman Sachs isn’t concerned.
The downgrade is unlikely to spark a sell-off in markets, and it contained no new fiscal information.
Overall, it “should have little direct impact on financial markets,” the bank said.
Fitch slashed the US’s credit rating on Tuesday, but Goldman Sachs doesn’t see reason for concern.
After Fitch’s call, strategists from the bank led by Jan Hatzius published a note emphasizing that the report didn’t include any new information that could actually move markets.
The ratings agency downgraded the US’s long-term debt from AAA to AA+, pointing to this summer’s last-minute debt deal, rising government debt, and suspect long-term management.
Here’s what Fitch said in its statement:
“There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.”
Here’s how Goldman Sachs responded:
“Bottom line: the downgrade mainly reflects governance and medium-term fiscal challenges, but does not reflect new fiscal information. The downgrade should have little direct impact on financial markets as it is unlikely there are major holders of Treasury securities who would be forced to sell based on the ratings change.”
Fitch and Goldman share similar economic projections for the next several years, the strategists explained, and nothing in the downgrade is based on those outlooks or any difference in forecast.
Big holders of US Treasury securities aren’t going to rush to shed their holdings just because of the downgrade, Goldman maintained. In 2011, S&P downgraded the country’s sovereign rating, which weighed on sentiment but similarly dit not spark a wave of forced selling.
Finally, Fitch did not adjust its “country ceiling” to reflect the downgrade, and that currently still sits a AAA level, according to Goldman.
“If Fitch had also lowered the country ceiling, it could have had negative implications for other AAA-rated securities issued by US entities,” strategists wrote. “This rating action does not appear to have any implications for securities issued by government-sponsored entities (GSEs), nor for municipal issuers.”