A US government shutdown would negatively impact the country’s credit, credit standing agency Moody’s said on Monday, a stern warning coming one month after Fitch downgraded the US by one notch on the back of a debt ceiling crisis.
US government services can be disrupted and a whole lot of 1000’s of federal staff furloughed without pay if Congress fails to supply funding for the fiscal 12 months starting Oct. 1.
A possible shutdown can be further evidence of how political polarization in Washington is weakening fiscal policymaking at a time of rising pressures on government debt affordability because of upper rates of interest, Moody’s analyst William Foster told Reuters.
“If there shouldn’t be an efficient fiscal policy response to attempt to offset those pressures … then the likelihood of that having an increasingly negative impact on the credit profile might be there,” said Foster. “And that could lead on to a negative outlook, potentially a downgrade sooner or later, if those pressures aren’t addressed.”
US government services can be disrupted and a whole lot of 1000’s of federal staff furloughed without pay if Congress fails to supply funding for the fiscal 12 months starting Oct. 1.REUTERS
Moody’s has an “Aaa” rating for the US government with a stable outlook – the very best creditworthiness it assigns to borrowers. It’s the last major agency with such a rating after Fitch downgraded the federal government triple A rating by one notch in August to AA+ — the identical rating assigned by S&P Global in 2011.
“Fiscal policymaking is less robust within the US than in lots of Aaa-rated peers, and one other shutdown can be further evidence of this weakness,” Moody’s said in an announcement.
The economic impact of a shutdown would likely be limited and short-lived, with essentially the most direct economic impact attributable to lower government spending. After all, the longer the shutdown lasts, the more negative its impact can be on the broader economy, said Moody’s.
“Fiscal policymaking is less robust within the US than in lots of Aaa-rated peers, and one other shutdown can be further evidence of this weakness,” Moody’s said in an announcement.REUTERS
Congress thus far has did not pass any spending bills to fund federal agency programs within the fiscal 12 months starting on Oct. 1 amid a Republican Party feud.
The shutdown wouldn’t impact government debt payments nevertheless it would come just just a few months after political brinkmanship across the US debt limit threatened to cause a sovereign debt default.
That crisis, though it was eventually resolved before any missed debt payment, was a significant component leading Fitch to downgrade its US rating by one notch last month.
Congress thus far has did not pass any spending bills to fund federal agency programs amid a Republican Party feud. Above, House Speaker Kevin McCarthy.AP
“On this environment of upper rates for longer and pressures constructing on the debt affordability front, it’s that rather more essential that fiscal policy can respond,” said Foster at Moody’s.
“And it looks increasingly challenged due to things like the federal government shutdown and having come off the debt limit episode, since it’s such a polarized political dynamic in Washington,” he said.
