The Moody’s ratings agency has warned that a US government shutdown this weekend, amid political deadlock in Congress, would have negative implications for the country’s top tier credit rating.
Just four months after barely avoiding a credit default, the world’s largest economy is facing a government shutdown at the end of the month due to a concerted campaign for deep spending cuts by hardline Republicans in the House of Representatives.
With less than a week to go, the measures have yet to pass the Republican-controlled House, and have little chance of passing the Democratic-controlled Senate.
“A shutdown would be credit negative for the US sovereign,” Moody’s Investors Service wrote in a note to clients on Monday.
The warning from Moody’s — the only major agency to maintain its rating for US sovereign debt at its highest level — underscores the potential economic danger to the United States of failing to reach an agreement to keep the government funded before the end of the month.
Fitch and S&P have both downgraded US debt in recent years, raising the risk associated with the debt — and the cost of government borrowing.
A shutdown “would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns,” Moody’s wrote.
“Further, a prolonged shutdown would be disruptive to the US economy and financial markets, with potential negative ramifications for the sovereign’s debt affordability,” it added.
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