US States' Credit Ratings Compared to Federal Government
US states are likely to maintain their top credit ratings from Moody’s despite the federal government being downgraded, as states are in better fiscal shape than the federal government. This is due to requirements for states to balance their budgets and historical resilience shown by states in the past.
Key Points
- States are required to balance their operating budgets
- Historically, US states have shown resilience in maintaining their credit ratings despite federal downgrades
Pros
- States are in better fiscal shape than the federal government
- Most states have pristine triple-A ratings from Moody’s
Cons
- Ballooning debt and deficits at the federal level could damage America’s standing as a global capital destination
- Potential increase in borrowing costs for corporates based on government debt yields