Moody's warns government shutdown would 'negatively' affect U.S. credit

The credit rating of U.S. treasury bonds would suffer negative consequences should the federal government be shut down as a result of a political impasse in the House of Representatives, Moody's Investor Services warned Monday. File Photo by Sealy j/Wikimedia Commons

Sept. 25 (UPI) -- Moody's Investors Service warned Monday that a government shutdown triggered by a political impasse among House Republicans would negatively impact its current AAA credit rating for U.S. sovereign debt.

The credit rating firm said in a research note that even a short-lived government shutdown coming after this year's debt ceiling "brinksmanship" would "underscore the weakness of U.S. institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years."

Further, the ratings firm said, a prolonged shutdown "would be disruptive to the U.S. economy and financial markets, with potential negative ramifications for the sovereign's debt affordability."

A possible shutdown is looming beginning next week as a group of hard-right Republican House lawmakers who support former President Donald Trump are blocking any progress on a series of necessary appropriations bills as well as a continuing resolution to fund the government unless their demands are met.

House Speaker Kevin McCarthy has so far been unable to forge a compromise with the group, who have linked their support to ideologically driven conditions that are not likely to approved by a bipartisan majority in the U.S. Senate or by President Joe Biden.

Biden last week warned that the group of "extreme House Republicans" are "marching our country toward a government shutdown that would damage our communities, economy, and national security."

Moody's on Monday noted that a government shutdown would "demonstrate the significant constraints that intensifying political polarization continue to put on U.S. fiscal policymaking during a period of declining fiscal strength, driven by persistent fiscal deficits and deteriorating debt affordability."

Should the firm ultimately downgrade U.S. debt, it would mark the first time that all of the "Big Three" credit agencies had stripped U.S. government bonds -- long considered the safest investment in the world -- of the coveted top-tier rating.

The political instability highlighted earlier this year by the debt ceiling fight in August prompted the Fitch credit rating agency to downgrade long-term U.S. debt from its top-ranked AAA to AA+.

The Standard & Poor's agency downgraded U.S. debt from AAA to AA+ in 2011 following a similar debt ceiling crisis between congressional Republicans and then-president Barack Obama.