Moody’s issued a warning that a potential government shutdown in the United States could jeopardize the country’s triple-A credit rating. The warning comes amidst a standoff in Congress over funding the federal government, raising concerns about the nation’s financial stability.
While Moody’s report on Monday was not an official ratings decision, it emphasized that a government shutdown would be “credit negative for the US sovereign.” This move would highlight the weakness of the US institutional and governance strength compared to other AAA-rated sovereigns. It would also underscore the challenges posed by intense political polarization on fiscal policymaking, particularly as the country faces widening fiscal deficits and deteriorating debt affordability.
The looming government shutdown could take effect as early as the upcoming Sunday if an agreement is not reached. This would result in the furloughing of millions of workers and a partial halt in federal government operations.
The current budget dispute follows a protracted battle earlier this year over raising the US debt ceiling.
In August, Moody’s rival Fitch Ratings downgraded the US due to an “erosion of governance,” causing concern in financial markets. S&P had previously downgraded the US rating in 2011 during a budget fight and government shutdown.
The potential consequences of a lower credit rating include increased borrowing costs for the US government. However, it’s worth noting that previous downgrades by Fitch and S&P had limited immediate market impact.
To avert a government shutdown, any funding deal must receive approval from both the Republican-controlled House of Representatives and the Democrat-controlled US Senate.
While a majority of senators have expressed support for a short-term funding measure, some hardline House Republicans, advocating for significant spending cuts, have rejected a compromise. Republican House Speaker Kevin McCarthy rejected the stopgap funding bill advancing in the Senate on Wednesday.
The White House and Democratic officials are characterizing the standoff as a “Republican shutdown” and emphasizing the risks and disruptions it could bring to the economy and communities across the country.
“If we have a government shutdown, a lot of vital work and science and health could be impacted, from cancer research to food safety,” President Joe Biden said on Wednesday. “So the American people need our Republican friends in the House of Representatives to do their jobs: Fund the government.”
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