Moody’s warns that a government shutdown could threaten the country’s top credit rating –
Credit rating agency Moody’s has cautioned that a government shutdown could harm America’s credit rating.
While it said that a short-lived shutdown would ‘unlikely disrupt the economy,’ it would ‘underscore the weakness of US institutional and governance strength’ of the US compared to other top-tier economies.
Moody’s is the last major ratings agency to still have assigned US its top rating of AAA.
Last month, Fitch, another major ratings agency, dropped the US rating from AAA to AA+, citing the country’s $33 billion debt and ‘a steady deterioration in standards of governance.’
On Monday, Moody’s echoed that sentiment, saying a shutdown would highlight the constraints that ‘intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength.’
Credit rating agency Moody’s said a government shutdown would harm America’s credit rating, saying it would be a sign of poor and polarized governance
Congress so far has failed to pass any spending bills to fund federal agency programs, which would result in a shutdown from October 1
‘Looking ahead, weaker fiscal policymaking that leads to persistently high fiscal deficits and higher than expected interest costs would put pressure on the US rating or outlook,’ Moody’s wrote in a statement.
If Congress this week fails to provide funding for the new fiscal year, starting on October 1, government services would be disrupted and hundreds of thousands of federal workers would be furloughed without pay.
Moody’s analyst William Foster told Reuters the shutdown would be evidence of Washington’s weak policymaking in the face of financial pressures brought about by high interest rates and the country’s substantial $33 billion of debt.
‘If there is not an effective fiscal policy response to try to offset those pressures… the likelihood of that having an increasingly negative impact on the credit profile will be there,’ said Foster.
‘And that could lead to a negative outlook, potentially a downgrade at some point, if those pressures aren’t addressed.’
Moody’s rates the US government AAA with a stable outlook – the highest creditworthiness it assigns to economies.
‘Fiscal policymaking is less robust in the US than in many AAA-rated peers, and another shutdown would be further evidence of this weakness,’ Moody’s said.
President Joe Biden’s top economic adviser, Lael Brainard, said the Moody’s comment highlighted the importance that Congress reaches an agreement.
‘Today’s statement from Moody’s underscores that a Republican shutdown would be reckless, create completely unnecessary risks for our economy, and lead to disruptions for communities and families across the country,’ Brainard, director of the National Economic Council, said in a statement.
‘Congress must do its job and keep the government open.’
A Treasury spokesperson said the Moody’s report delivered ‘further evidence that a shutdown could undercut our current economic momentum’ at a time when inflation and unemployment were both below 4 percent.
Since President Biden and House speaker Kevin McCarthy agreed to suspend the debt ceiling in June, the deficit has increased by $1.58 trillion
US national debt has surpassed $33 trillion for the first time – as Congress careens toward a shutdown
Moody’s said the economic impact of a shutdown would likely be limited and short-lived, with the most direct effect from lower government spending, and the negatives growing the longer the shutdown lasts.
Congress so far has failed to pass any spending bills to fund federal agency programs amid a Republican Party feud. The shutdown would not affect government debt payments.
Earlier this year political feuding around lifting the US debt limit threatened to cause a US sovereign debt default.
Although the crisis was eventually resolved before any debt payments were missed, it was a major factor leading to Fitch’s downgrade last month.
‘In this environment of higher rates for longer and pressures building on the debt affordability front, it’s that much more important that fiscal policy can respond,’ said Foster, from Moody’s.
‘And it looks increasingly challenged because of things like the government shutdown and having come off the debt limit episode, because it’s such a polarized political dynamic in Washington,’ he said.