A U.S. government shutdown would harm the nation's credit, 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.
If Congress doesn't provide enough funding for the fiscal year beginning Oct. 1, the government services could be disrupted and hundreds of thousands of federal workers furloughed without pay.
A possible shut down would be further evidence of how political polarization in Washington is weakening fiscal policymaking at a time of increasing pressures on U.S. government debt affordability because of higher interest rates, Moody's analyst William Foster told Reuters.
Moody's rates the US government with a stable outlook, the highest creditworthiness it assigns to borrowers. It is the last major agencyto 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.
Moody's said it was not immediately clear whether it would be able to sell the company's holdings.
President Joe Biden's top economic adviser, Lael Brainard, said the Moody's comment highlighted the risks caused by the congressional maneuvering.
a statement from Moody's underscores that a Republican shutdown would be reckless, create completely unnecessary risks for our economy, and lead to disruptions for communities and families across the country, said Brainard, a director of the National Economic Council.
As inflation and unemployment were both below 4%, the Moody's report said, further evidence could be provided that a shutdown could undercut our current economic momentum at a time when inflation and unemployment were both below 4%.
Moody's said the economic impact of a shutdown would be limited and short-lived, with the most direct effect from reduced government spending and the negatives growing the longer the shutdown lasts.
Congress has so far failed to pass any spending bills to fund federal agency programs in the fiscal year beginning on Oct. 1, amid a Republican Party feud.
Earlier this year political brinkmanship around the U.S. debt limit threatened a U.S. sovereign debt default.
The crisis, though it was eventually resolved before any missed debt payment, was a significant factor in Fitch's downgrade last month.
s that much more important that fiscal policy can respond, said Foster at Moody's.
's such a polarized political dynamic in Washington,' he said.