In a statement on Monday, credit rating agency Moody’s warned that a US government shutdown would have a negative impact on the country’s credit. This comes just one month after Fitch downgraded the US due to a debt ceiling crisis. If Congress fails to provide funding for the fiscal year starting Oct. 1, US government services would be disrupted and hundreds of thousands of federal workers could be furloughed without pay.
Moody’s analyst, William Foster, explained that a possible shutdown would be further evidence of weakened fiscal policymaking in Washington. This is concerning as government debt affordability is already under pressure due to higher interest rates. Foster stated, “If there is not an effective fiscal policy response to try to offset those pressures… then the likelihood of that having an increasingly negative impact on the credit profile will be there. And that could lead to a negative outlook, potentially a downgrade at some point if those pressures aren’t addressed.”
Moody’s currently has an “Aaa” rating for the US government with a stable outlook, which is the highest creditworthiness rating it assigns to borrowers. However, it is now the only major agency with this rating after Fitch downgraded the government’s triple A rating in August. Moody’s noted that fiscal policymaking in the US is less robust compared to other Aaa-rated peers, and another shutdown would only further highlight this weakness.
While the economic impact of a shutdown would likely be limited and short-lived, with the most direct impact being lower government spending, the longer the shutdown persists, the more negative its effects will be on the broader economy, according to Moody’s.
Congress has thus far been unsuccessful in passing any spending bills to fund federal agency programs, primarily due to conflicts within the Republican Party. It’s important to note that a government shutdown would not affect government debt payments, but it would come shortly after the US faced a sovereign debt default threat during the dispute over the debt limit. This previous crisis played a significant role in Fitch’s recent downgrade of the US rating.
Foster emphasizes the importance of fiscal policy responsiveness in the current environment of higher interest rates and increasing debt affordability pressures. However, he expresses concern that fiscal policy is increasingly challenged due to events such as the potential government shutdown and the recent debt limit episode, largely because of the highly polarized political climate in Washington.
In summary, a US government shutdown would have adverse effects on the country’s credit, weaken fiscal policymaking, and increase pressures on government debt affordability. It is crucial for Congress to address these issues to prevent further negative impacts and potential credit downgrades.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
