Moody's warns government shutdown could hurt US credit rating

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Potomac Wealth Advisors founder and president Mark Avallone discusses the markets as a government shutdown looms, inflation and his outlook on the economy ahead of the release of updated economic data.

The federal government is facing a potential government shutdown that could begin this weekend barring action by Congress, and if it occurs, rating agency Moody’s said the U.S. credit rating could be negatively impacted.

Moody’s cited past brinksmanship over the debt limit as well as a dysfunctional budgeting process in Congress as weaknesses compared to other countries that hold Aaa ratings, which is the agency’s highest rating tier. The report emphasized a lack of medium-term fiscal planning, demonstrated by Congress routinely failing to approve an annual budget, as well as limited flexibility due to high spending on mandatory entitlement programs and rising borrowing costs.

«A shutdown would be credit negative for the U.S. sovereign,» the team of sovereign risk analysts led by Moody’s Investors Service senior vice president William Foster wrote. «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 U.S. institutional and governance strength relative to other Aaa-rated sovereigns that we have highlighted in recent years.»

«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,» Moody’s noted.

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