NEW YORK: A US government shutdown would harm the country’s credit rating agency Moodys said Monday, a stern warning that comes a month after Fitch downgraded the U.S. rating by one notch amid a debt ceiling crisis.
America’s government services would be disrupted and hundreds of thousands of federal workers would be laid off without pay if Congress fails to provide funding for the budget year that begins October 1.
A possible shutdown would be further evidence of how political polarization in Washington is weakening fiscal policymaking at a time of increasing pressure on the affordability of U.S. government debt due to higher interest rates, the Moody’s analyst said. William Foster told Reuters.
“If there is no effective fiscal policy to offset these pressures… then it is likely to have an increasingly negative impact on the credit profile,” Foster said. “And that could lead to a negative outlook, and possibly a credit downgrade at some point, if those pressures are not addressed.”
Moody’s rates the US government ‘Aaa’ with a stable outlook, the highest credit rating it assigns to borrowers. It is the last major agency to maintain such a rating for the US after Fitch downgraded the government one notch to AA+ in August – the same rating S&P Global assigned in 2011.
“Fiscal policymaking in the US is less robust than in many Aaa-rated US countries, and another shutdown would be further evidence of this weakness,” Moody’s said in a statement.
President Joe Biden’s chief economic adviser, Lael Brainard, said Moody’s comment highlighted the risks posed by congressional maneuvering.
“Today’s statement from Moody’s underscores that a Republican shutdown would be reckless, create completely unnecessary risks to our economy and lead to disruptions for communities and families across the country,” Brainard, director of the National Economic Council, said in a statement. a statement.
“Congress must do its job and keep the government open.”
A Treasury spokesman said the Moody’s report “provides further evidence that a shutdown could undermine our current economic momentum” at a time when inflation and unemployment were both below 4%.
Moody’s said the economic impact of a shutdown is likely to be limited and short-lived, with the most immediate effect coming from lower government spending, and that the negative impact will increase the longer the shutdown lasts.
Congress has so far failed to pass spending bills to fund federal agency programs in the fiscal year that begins Oct. 1, amid a feud between Republicans and the Party.
The closure would not affect national debt payments. Earlier this year, political mismanagement surrounding the US debt limit threatened to lead to a default on the US government debt.
That crisis, even though it was ultimately resolved before any missed debt payments, was a major factor leading to Fitch’s rating downgrade last month.
“In this environment of longer interest rates and increasing pressure on the debt affordability front, it is much more important that fiscal policy can respond,” said Moody’s Foster.
“And it looks increasingly challenged because of things like the government shutdown and the debt limit being overtaken, because there are such polarized political dynamics in Washington,” he said.
America’s government services would be disrupted and hundreds of thousands of federal workers would be laid off without pay if Congress fails to provide funding for the budget year that begins October 1.
A possible shutdown would be further evidence of how political polarization in Washington is weakening fiscal policymaking at a time of increasing pressure on the affordability of U.S. government debt due to higher interest rates, the Moody’s analyst said. William Foster told Reuters.
“If there is no effective fiscal policy to offset these pressures… then it is likely to have an increasingly negative impact on the credit profile,” Foster said. “And that could lead to a negative outlook, and possibly a credit downgrade at some point, if those pressures are not addressed.”
Moody’s rates the US government ‘Aaa’ with a stable outlook, the highest credit rating it assigns to borrowers. It is the last major agency to maintain such a rating for the US after Fitch downgraded the government one notch to AA+ in August – the same rating S&P Global assigned in 2011.
“Fiscal policymaking in the US is less robust than in many Aaa-rated US countries, and another shutdown would be further evidence of this weakness,” Moody’s said in a statement.
President Joe Biden’s chief economic adviser, Lael Brainard, said Moody’s comment highlighted the risks posed by congressional maneuvering.
“Today’s statement from Moody’s underscores that a Republican shutdown would be reckless, create completely unnecessary risks to our economy and lead to disruptions for communities and families across the country,” Brainard, director of the National Economic Council, said in a statement. a statement.
“Congress must do its job and keep the government open.”
A Treasury spokesman said the Moody’s report “provides further evidence that a shutdown could undermine our current economic momentum” at a time when inflation and unemployment were both below 4%.
Moody’s said the economic impact of a shutdown is likely to be limited and short-lived, with the most immediate effect coming from lower government spending, and that the negative impact will increase the longer the shutdown lasts.
Congress has so far failed to pass spending bills to fund federal agency programs in the fiscal year that begins Oct. 1, amid a feud between Republicans and the Party.
The closure would not affect national debt payments. Earlier this year, political mismanagement surrounding the US debt limit threatened to lead to a default on the US government debt.
That crisis, even though it was ultimately resolved before any missed debt payments, was a major factor leading to Fitch’s rating downgrade last month.
“In this environment of longer interest rates and increasing pressure on the debt affordability front, it is much more important that fiscal policy can respond,” said Moody’s Foster.
“And it looks increasingly challenged because of things like the government shutdown and the debt limit being overtaken, because there are such polarized political dynamics in Washington,” he said.
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