Moody’s warns shutdown could harm US credit rating

Moody’s Investors Service warned Monday that a government shutdown could have a negative impact on the U.S.’s credit rating, as Congress struggles to reach a deal before funding runs out on Saturday.

A shutdown would be “credit negative” for the country, even if it is short lived and results in limited disruption to the economy, Moody’s said.  

“[It] would underscore the weakness of US institutional and governance strength relative to other Aaa-rated sovereigns that we have highlighted in recent years,” the rating agency wrote in Monday’s report.

The U.S. currently holds the highest possible rating — “Aaa” — from Moody’s. However, a shutdown would “demonstrate the constraints that intensifying political polarization” has placed on fiscal policymaking in the U.S., the rating agency said.

“Looking ahead, weaker fiscal policymaking that leads to persistently high fiscal deficits and higher than expected interest costs would put pressure on the US rating or outlook,” Moody’s added.

The warning comes after Fitch Ratings downgraded the U.S.’s credit rating from “AAA” to “AA+” in August, pointing to the country’s repeated stand-offs over the debt ceiling that have “eroded confidence in fiscal management.” 

The White House and House Republicans struck a deal to suspend the borrowing limit in June, just days before the U.S. was set to default on its debt. While a default was ultimately averted, Fitch noted in August that there “has been a steady deterioration in standards of governance over the last 20 years.”