Moody’s has issued a warning that a U.S. government shutdown would have a negative impact on the country’s credit. This comes after Fitch downgraded the U.S. by one notch last month due to a debt ceiling crisis. If Congress fails to provide funding for the fiscal year starting on October 1, U.S. government services could be disrupted, and federal workers could be furloughed without pay. Moody’s analyst William Foster expressed concerns about the weakening fiscal policymaking in Washington and the rising pressures on U.S. government debt affordability. This could lead to a downgrade if these issues are not addressed.

The statement from Moody’s highlights the risks caused by the political polarization and maneuvering in Congress. President Joe Biden’s top economic adviser, Lael Brainard, called a Republican shutdown reckless and emphasized the unnecessary risks it would bring to the economy. A Treasury spokesperson also acknowledged the potential negative impact of a shutdown on the current economic momentum, especially considering low inflation and unemployment rates. However, Moody’s believes that the economic impact of a shutdown would likely be limited and short-lived, with lower government spending being the most direct effect.

Despite the potential negative consequences, Congress has been unable to pass any spending bills to fund federal agency programs. The article emphasizes that a shutdown would not affect government debt payments, but it highlights the previous political brinkmanship around the U.S. debt limit that threatened a sovereign debt default. Moody’s suggests that in the current environment of higher interest rates and growing pressures on debt affordability, it is crucial for fiscal policy to be able to respond effectively, but the polarized political dynamics in Washington make this increasingly challenging.

Source link