Credit rating agency Moody's (MCO) has issued a warning about the detrimental effects of a potential U.S. government shutdown on the nation's credit profile. This follows Fitch's recent downgrade of the U.S. credit rating due to concerns stemming from a debt ceiling crisis. If Congress fails to secure funding for the upcoming fiscal year starting on October 1, various government services will be halted, and numerous federal employees would go unpaid. The growing concern stems from political divisions in Washington which have been hampering effective fiscal policymaking, especially amidst increasing pressures on the U.S. government's debt affordability brought about by rising interest rates.
Moody's, which currently rates the U.S. at "AAA" with a stable outlook, is the only remaining major agency that hasn't downgraded the U.S. Fitch, in August, had lowered the U.S. rating to AA+ — a grade given by S&P Global (
Reactions to Moody's statement have been swift. Lael Brainard, President Joe Biden's chief economic adviser, emphasized that the potential shutdown, spurred by Republican in-fighting, presents unnecessary risks to the U.S. economy and can cause significant disruptions nationwide. Additionally, a spokesperson from the Treasury highlighted that while a shutdown would likely have a brief economic impact, mainly stemming from decreased government expenditure, its repercussions would compound the longer it lasts. Despite the direct consequences of a shutdown not impacting government debt payments, the earlier political stand-off concerning the U.S. debt limit almost resulted in a sovereign debt default. Such episodes have strained the nation's credit standing, with Fitch already having downgraded the U.S. last month. Moody's analyst, William Foster, emphasized the importance of adaptable fiscal policies in these high-pressure times, which currently seem to be hampered by the extreme political divide in Washington.
