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US Government Shutdown Bad for Country’s Credit, Warns Moody’s

U.S. government shutdown would harm the country’s credit, rating agency Moody’s said on Monday, a stern warning coming one month after Fitch downgraded the U.S. by one notch on the back of a debt ceiling crisis.

U.S. government services would be disrupted and hundreds of thousands of federal workers furloughed without pay if Congress fails to provide funding for the fiscal year starting Oct. 1.

A possible shutdown would be further evidence of how political polarization in Washington is weakening fiscal policymaking at a time of rising pressures on U.S. government debt affordability because of higher interest rates, Moody’s analyst William Foster told Reuters.

“If there is not an effective fiscal policy response to try to offset those pressures … then the likelihood of that having an increasingly negative impact on the credit profile will be there,” said Foster. “And that could lead to a negative outlook, potentially a downgrade at some point, if those pressures aren’t addressed.”

Moody’s rates the U.S. government “Aaa” with a stable outlook, the highest creditworthiness it assigns to borrowers. It is the last major agency to maintain such a rating for the U.S. after Fitch downgraded the government by one notch in August to AA+ – the same rating assigned by S&P Global in 2011.

“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,” Moody’s said in a statement.

President Joe Biden’s top economic adviser, Lael Brainard, said the Moody’s comment highlighted the risks caused by the congressional maneuvering.

Source : Reuters