Home » Government shutdown could hurt U.S. credit rating, Moody’s warns

Government shutdown could hurt U.S. credit rating, Moody’s warns

Credit rating firm Moody’s warned that a shutdown of the U.S. federal government would be “credit negative” for the U.S.

Why it matters: Moody’s is the last of the big three credit rating firms that still bestows the cherished “triple-A” rating on the U.S., which indicates U.S. government bonds are among the safest investments on earth.

Catch up quick: Fitch Ratings stripped the U.S. of its AAA rating in August, citing the debt ceiling fight and governance issues.

  • S&P Global downgraded the U.S. from AAA back in 2011 after a similar debt ceiling fight.

State of play: The House Republican conference has been unable to advance key budgetary bills amid divisions between Speaker Kevin McCarthy and right-wing factions demanding deep budget cuts.

What they’re saying: In a note published Monday afternoon, Moody’s spotlighted the political chaos that surrounds budgeting decisions in Washington, suggesting that such brinksmanship is inconsistent with its top Aaa rating.

  • “Fiscal policymaking is less robust in the U.S. than in many Aaa-rated peers, and another shutdown would be further evidence of this weakness,” they wrote.
  • “After having negotiated a contentious bipartisan debt limit deal in June, U.S. Congress is yet again renewing internal party disagreements that threaten a government shutdown and clearly reflect the political hurdles to U.S. fiscal policymaking,” they said.

Context: The risk of such fiscal hijinks has grown as the U.S. government’s public debt load has increased to roughly 100% of GDP in the aftermath of the COVID crisis, Moody’s said.

The bottom line: Moody’s seems to be warning that if a government shutdown ensues, the U.S. could kiss its last claim to triple-A status goodbye.

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