Moody’s warns, US government shutdown is bad for the country’s creditworthiness

NEW YORK, Sept 25 (Reuters) – Credit rating agency Moody’s said on Monday a U.S. government shutdown would have a negative impact on the country’s creditworthiness, a month after Fitch downgraded America’s rating by one notch due to the debt ceiling crisis. warn up. ,

If Congress fails to provide funding for the fiscal year starting October 1, US government services will be disrupted and hundreds of thousands of federal employees will be furloughed without pay.

Moody’s analyst William Foster told Reuters that a potential shutdown would be evidence of how political polarization in Washington is undermining fiscal policymaking at a time of growing pressure on the U.S. government’s borrowing capacity due to higher interest rates.

“If there is no effective fiscal policy response to address those pressures … the negative impact on the credit profile will likely continue,” Foster said. “And that could lead to a negative outlook, potentially leading to a decline at some point, if those pressures are not addressed.”

Moody’s has an “AA” rating with a stable outlook for the U.S. government – ​​the highest rating it gives to borrowers. It is the last major agency with such a rating after Fitch downgraded the US government’s triple A rating by one notch to AA+ in August – the same rating given by S&P Global in 2011.

“Fiscal policymaking in the US is less robust than in many AAA-rated peers, and another shutdown would be further evidence of this weakness,” Moody’s said in a statement.

The economic impact of the shutdown will likely be limited and short-lived, with the most direct economic impact being due to reduced government spending. Of course, the longer the shutdown lasts, the greater its negative impact on the broader economy will be, Moody’s said.

Congress has so far failed to pass any spending bill to fund federal agency programs in the fiscal year that begins Oct. 1 amid Republican Party squabbling.

The shutdown will not affect government debt payments, but threatens to cause a US sovereign debt default, just months after political instability around the US debt ceiling.

That crisis, even if ultimately resolved before any outstanding debt payments were made, was a major factor causing Fitch to downgrade its US ratings by one notch last month.

“In this environment of prolonged high rates and pressure on credit affordability, it is even more important that fiscal policy can respond,” said Foster at Moody’s.

“And it’s looking increasingly challenging because of things like the government shutdown and coming out of the debt ceiling episode, because it’s such a polarized political dynamic in Washington,” he said.

Reporting by David Barbuscia; Editing by Megan Davis, Sharon Singleton and Josie Cao

Our Standards: The Thomson Reuters Trust Principles.

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David Barbuscia covers macro investing and trading out of New York with a focus on fixed income markets. Previously based in Dubai, where he was Reuters’ chief economics correspondent for the Gulf region, he covered a range of topics including Saudi Arabia’s efforts to diversify away from oil, Lebanon’s financial crisis as well as scoops on corporate and sovereign debt deals. written. and restructuring of situations. Before joining Reuters in 2016, she worked as a journalist at Debtwire in London and also in Johannesburg.

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