S&P’s AA+ Stable US Rating Isn’t A Win – It’s A 100% Debt-To-GDP Time Bomb Hiding In Plain Sight

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By: Raymond Vance

S&P’s latest AA+ rating affirmation for the US doesn’t signal fiscal health. It’s a carefully worded warning wrapped in a seemingly positive stable outlook label. I sat through a client call last week with fixed income portfolio managers, and most glossed over the fine print of this release. They fixated on the stable outlook instead of the underlying red flags that S&P explicitly called out. This kind of complacency is exactly what leads to unforeseen market shocks when hidden fiscal risks finally come to the surface. The US Treasury tried to dismiss S&P’s 2011 AAA downgrade as inaccurate back then, but every subsequent data point has validated that initial call. Most investors still treat US sovereign debt as effectively risk-free, even as the country’s fiscal position erodes year over year.

The official S&P release frames the stable outlook as a vote of confidence in US economic fundamentals. It highlights solid economic growth, credible monetary policy execution, and consistent tariff revenue as buffers for near-term fiscal stability. It notes current fiscal deficits are high but not rising, which justifies the stable outlook designation for the time being. The fine print of the release tells a far less optimistic story. S&P explicitly projects US net general debt will approach 100% of GDP in the coming years. Structurally rising nondiscretionary interest payments and aging-related expenditure are the key drivers of this growing debt burden. The release also admits bipartisan cooperation to lower deficits and shrink the budget remains completely elusive for US lawmakers. Neither major party has put forward a viable, actionable plan to cut spending or raise revenue in a way that would meaningfully reduce long-term deficits.

S&P explicitly notes US lawmakers will keep raising the debt ceiling to avoid catastrophic economic and market fallout. This isn’t a sign of functional governance, it’s an admission that lawmakers only act when staring down total collapse. The release confirms a downgrade risk remains over the next two years if deficits grow further. Lawmakers failing to contain spending or manage revenue implications from tax code changes are the two key triggers for a potential rating cut. S&P also acknowledges its assessment of the US is harsher than that of some of its peer ratings agencies. This dimmer view stems from extreme partisan polarization that leads to sharper policy swings, especially under unified government control. It also reflects the consistent failure of the US political class to reverse the steady deterioration of the nation’s fiscal profile. All three major ratings agencies now rank the US one level below the top AAA grade with stable outlooks.

The US will lose its AA+ sovereign credit rating by 2026 if partisan gridlock continues to block any meaningful long-term deficit reduction measures.

Author bio: Raymond Vance, a senior macro-economist and consultant to global central banking policy research working groups.