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Moody’s warned on Monday that a U.S. government shutdown would threaten the country’s top-rated credit rating amid a stalemate in Congress that could leave the federal government without funding.
Moody’s, the last major ratings agency to downgrade U.S. debt, said Monday that a shutdown would “negatively impact the U.S. government’s credit rating.”
The warning came as congressional leaders and White House officials warned that a deadlock was becoming increasingly likely unless a right-wing flank of House Republicans compromised with their own party’s leadership and voted to continue to govern finance.
A shutdown could come into effect as early as this Sunday, which would furlough millions of workers and bring parts of the federal government to a standstill.
Moody’s report on Monday was not an official ratings decision, and the group said any shutdown would likely be short-lived and the government’s debt service payments would be unaffected.
But a shutdown would “underscore the weakness of U.S. institutional and governance strength relative to other AAA-rated states” and demonstrate “the significant limitations of increasing political polarization of fiscal policy at a time of declining fiscal strength, driven by increasing budget deficits, etc. imposed “deteriorating debt sustainability”.
The current budget dispute follows a lengthy political dispute over raising the U.S. debt or credit ceiling earlier this year.
In August, Moody’s rival Fitch Ratings spoke of an “erosion of governance” when it stripped the U.S. of its triple-A rating, triggering a stock market sell-off. S&P cut its U.S. rating after a budget dispute and government shutdown in 2011.
Lower credit ratings typically increase a country’s borrowing costs, although previous downgrades by Fitch and S&P had little impact. There was no immediate market reaction following the release of Moody’s report on Monday.
Any government funding deal must be approved by both the Republican-controlled House of Representatives and the U.S. Senate, which Democrats control by a razor-thin margin.
While a majority of senators have signaled support for a short-term measure, a so-called continuing resolution, to keep the government funded, several hardliners in the House of Representatives who are calling for deep spending cuts have rejected a compromise.
Kevin McCarthy, speaker of the Republican House of Representatives, emphasized on Monday that a shutdown could be avoided. “Why should they stop paying the troops, or stop paying the border guards or the coast guard?” he said, referring to objectors in his own party. “I don’t understand how this makes you stronger.”
But his comments were undermined by former President Donald Trump, the current Republican primary candidate, who used a social media post to encourage Republicans to make good on their threat to shut down, declaring that the public was to blame would lie with President Joe Biden.
White House press secretary Karine Jean-Pierre responded Monday that it was a “Republican shutdown.” She added: “Extreme House Republicans. . . are leading us to a government shutdown that shouldn’t be happening.”
Source : www.ft.com