Introduction

Moody’s has issued a warning that a potential government shutdown in the United States could threaten the country’s excellent credit rating. This warning comes as Congress faces a standoff that may result in the federal government being left without funding.

Moody’s Concerns

Moody’s, the last major rating agency that hasn’t downgraded U.S. debt, stated that a government shutdown would have a negative impact on the country’s sovereign credit. However, it also noted that the shutdown would likely be brief and would not affect the government’s ability to make debt service payments. Moody’s believes that this closure would expose the weak institutional and managerial strength of the United States compared to other AAA-rated countries. It would also demonstrate the limitations imposed by political polarization on fiscal policy-making, especially considering the declining fiscal strength due to increased deficits and deteriorating debt sustainability.

Growing Likelihood of Shutdown

The warning from Moody’s coincides with statements from congressional leaders and White House officials, who have expressed concerns about the increasing likelihood of a government shutdown. The main cause of this potential shutdown is the lack of compromise between right-wing House Republicans and their party’s leadership regarding government funding.

Possible Start and Duration of Shutdown

It is worth noting that government funding expires on October 1, which marks the beginning of the federal fiscal year. If Congress fails to pass the president’s funding plan into law, the shutdown will commence at 12:01 a.m. The duration of the shutdown is uncertain due to the division between the Democratic-controlled Senate and the Republican-led House of Representatives.

Sources

Sources: Reuters, CNBC