US risks top credit rating with government shutdown, Moody’s warns

New York – Moody’s Investors Service, the only remaining major credit grader to assign the United States a top rating, has signalled that its confidence is wavering.

“While government debt service payments would not be impacted and a short-lived shutdown would be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years,” analysts led by Mr William Foster wrote in a report on Monday.

In the wake of the

federal debt ceiling “brinkmanship” earlier in 2023,

“a government shutdown would demonstrate the significant constraints that intensifying political polarisation continue to put on US fiscal policymaking during a period of declining fiscal strength, driven by persistent fiscal deficits and deteriorating debt affordability”, Moody’s added.

Markets have been on watch for further credit actions after Fitch Ratings downgraded the US earlier in 2023, citing concerns about political wrangling over the debt ceiling that took the nation to the brink of a default.

Moody’s latest report – which leaves its rating of the US unchanged – is a sign that US debt sustainability and the politics around it will continue to be a theme through the remainder of 2023.

The report comes as Congress struggles to pass a short-term spending Bill required to stop a

government shutdown

when the new US fiscal year begins in October.

Some of the holdouts have cited Fitch’s downgrade, and the company’s concerns about the size of US debt, while overlooking its criticism of the brinkmanship associated with the debt ceiling.

Moody’s said a shutdown’s effect “would be concentrated in areas with a large government presence and depend on the duration of the closure”. BLOOMBERG