The only member of the “Big Three” agencies that has not downgraded the U.S. credit rating from “AAA” status warned that another government shutdown would make the United States look weak compared to other top-rated nations.
Moody’s Investors Service sounded the “credit negative” alarm in a note on Monday as Congress scrambles to reach a deal to fund various arms of the federal government with the new fiscal year starting at the beginning of next month.
“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,” Moody’s said, according to CNN.
“In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability,” the note added.
The two other “Big Three” credit agencies started knocking the United States down from its top-rated “AAA” perch more than a decade ago across years of rising U.S. government budget numbers and the debt doubling since 2011 to more than $33 trillion. Analysts say that such a drop could lead to a rise in borrowing costs, hikes in interest rates, and hurt the economy.
In 2011, S&P bumped the U.S. long-term rating from its “AAA” perch to “AA+” — where it stands today — citing “political brinkmanship” and the debt burden just days after then-President Barack Obama signed legislation to lift the debt ceiling just days before it was estimated the U.S. could have defaulted on its financial obligations.
Fitch Ratings downgraded the country’s Long-Term Foreign-Currency Issuer Default Rating from top-rated “AAA” to “AA+” less than two months ago after the federal government narrowly avoided a default on its debt over the summer and ahead of the spending showdown now taking place in a politically-divided Congress.
Although Moody’s did not announce a downgrade on Monday, it did predict a more “pronounced” impact on economy and GDP forecasts if a shutdown ends up being “protracted and it impaired national business and consumer confidence or triggered an adverse reaction in financial markets.”
Moody’s analyst William Foster told Reuters the “likelihood of that having an increasingly negative impact on the credit profile will be there” if there is “not an effective fiscal policy response to try to offset” pressures on U.S. government debt affordability due to higher interest rates.
“And that could lead to a negative outlook, potentially a downgrade at some point, if those pressures aren’t addressed,” he added.
