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US credit rating may come under pressure If the government closes downMoody’s Investors Service warned on Monday.
The closure would be “credit negative” for the U.S. sovereign, according to a Moody’s note.
“Government debt service is unaffected and a short-term government shutdown is unlikely to disrupt the economy, but this reflects the poor quality of U.S. institutions and governance compared to other AAA-rated sovereigns, which we have highlighted in recent years. It will highlight weaknesses in strength,” Moody’s wrote.
“Increasing political polarization will demonstrate significant constraints on fiscal policy-making, especially as fiscal strength declines due to widening budget deficits and worsening debt affordability. right.”
of federal government could be shut down If Congress fails to pass a federal spending bill, it will take place on October 1st.
Moody’s is the only one of the three major credit rating agencies to give the United States a superior rating of AAA. Standard & Poor’s downgraded the U.S. rating in 2011 following a dispute over the then-current debt ceiling. In August, Fitch Ratings downgrades America’s credit rating AA+ after the recent debt ceiling debate.
“Looking forward, if fiscal policy weakens, the deficit remains high, and interest costs exceed expectations, this will put pressure on the U.S. rating and outlook,” Moody’s said.
The economic impact of the government shutdown will be concentrated primarily in areas with a significant government presence, and the full impact will depend entirely on how long the shutdown lasts, the document said. Moody’s added that most of the economic impacts, especially spending, will be temporary and will be reversed once the government reopens.
“If it is short-lived, the impact on the overall economy and GDP growth forecasts will be minimal,” Moody’s said. “The impact will be even more pronounced if the shutdown lasts longer, undermines business and consumer confidence in the country, and negatively impacts financial markets.”
The most immediate impact of the shutdown will be through reductions and cuts in government spending. Moody’s said the impact was driven by spending from affected federal employees and government contractors.
This is not the first time a government agency is on the brink of a shutdown. The government shut down for a record-long 35 days from December 2018 to January 2019 amid a deadlock in Congress over funding for then-President Donald Trump’s border wall.
Impact of delayed salary payments, reduced working hours, and contract stagnation for federal employees caused an estimated $11 billion loss to the economyreported the Congressional Budget Office.
The closures could cost the U.S. travel industry $140 million a day, according to the U.S. Travel Association.
Additionally, a government shutdown could cause confusion for investors, economists, and most importantly, policymakers. Federal Reserve, flying blind. The Bureau of Labor Statistics said the government shutdown will delay the release of key data on inflation and employment. That would force Fed officials to rely on data produced by the private sector to make important decisions about interest rates.
— CNN’s Betsy Klein and Matt Egan contributed to this report
