S&P reaffirms US at AA+, highlights institutional strengths

The US Republican party’s ‘sweep’ of the executive and legislative branches of their government means a mandate for change and less ‘political gridlock’ on Capitol Hill, the world’s most influential debt ratings agency said.

“Hence, the president-elect and the Republicans have a mandate for and ability to effect policy change more easily than with a more divided government in recent years,” Standard& Poor’s said.

In the same statement following the surprise results of the elections, S&P reaffirmed its AA+ rating on the long-term debt of the United States, together with a ‘stable’ outlook.

The analysts also called attention to how Trump had run on a platform which was at odds with some policies of the traditional Republican leadership and its historical base.

However, the ratings agency also highlighted how Trump had reached out to the other parties following the elections, while Obama and former secretary Clinton had emphasised “the importance of unity during the transition”.

Nonetheless, bridging divides would be a challenging task, the agency said.

S&P assumed the long-standing system of ‘checks and balances’ inherent in the US political system would support policy execution despite the new president’s lack of experience in public office “which raises uncertainty on policy proposals”.

Likewise, it expected the independence of the Federal Reserve would be respected.

S&P also assumed that any measures on the trade and immigration fronts would not “materially” lower the economy’s trend rate of growth, which it estimated stood near 2.0%.

Lastly, the analysts believed that any relaxation of budget discipline to include more public works and tax relief would fall within the bounds of how Republicans traditionally approach public finances.