By Ovunc Kutlu
ISTANBUL (AA) - US states are expected to see slower revenue growth after the Federal Reserve's interest rate cut, Fitch Ratings said Thursday.
The rating agency projects a sizeable slowdown in states' revenue growth next year, followed by a series of interest rate cuts by the central bank through 2026.
It said the labor market and job growth are already slowing in the US, and the same trend appears likely for state budgets.
"Managing expenditures to revenues is nothing new to states, but the pandemic was an extraordinary outlier that states had to adjust to in the moment," said Senior Director Karen Krop. "States had already learned the importance of building fiscal resilience during good times from the global financial crisis, and this lesson helped them weather the pandemic."
Eric Kim, senior director and US state government group head from Fitch, pointed out that the states of California, Illinois and New Jersey recently raised taxes to address budget gaps.
Kim added that there is also a wide range of disparity in non-farm payroll growth across US states, as Idaho and Utah saw growth of more than 10% above pre-pandemic levels in July, while Hawaii, Louisiana and Maryland were stalled below pre-pandemic employment levels.
Fitch said time will tell how the direction of the broader economy will affect states after the interest rate cuts.