In a stark advisory released on Monday, global credit ratings agency Moody’s cautioned that a looming US government shutdown could have detrimental implications for the nation’s credit assessment. While the agency anticipates a short-lived economic impact, it underscores the formidable constraints exacerbated by intensifying political polarization, impeding effective fiscal policymaking during a period of waning fiscal robustness.
With Congress locked in a stalemate over funding allocations for federal agency programs in the forthcoming fiscal year, the impasse within the Republican Party has thwarted progress. The ramifications of a funding shortfall are poised to reverberate across the nation, with disruption of crucial government services and indefinite furloughs for hundreds of thousands of federal employees until a resolution is reached.
Furthermore, pivotal economic data pivotal to both policymakers and investors would face suspension, casting a shadow over critical decision-making processes. Moody’s analysis contends that the most immediate impact of a shutdown would be a downturn in government spending. However, the agency underscores that a prolonged impasse would yield increasingly adverse repercussions on the broader economy.
Moody’s representatives cautioned, stating, “A prolonged shutdown would likely be disruptive both to the US economy and financial markets.” This prospective shutdown further illuminates the deleterious influence of political polarization on fiscal determinations, particularly in the wake of this year’s government debt ceiling brinkmanship.
Earlier this August, credit rating agency Fitch downgraded the U.S. rating by one notch, signaling a growing apprehension over the nation’s financial stability. Moody’s emphasizes that “fiscal policymaking is less robust in the US than in many Aaa-rated peers, and another shutdown would be further evidence of this weakness.”
In summation, Moody’s issued a sobering reminder regarding the US government shutdown, that “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.” Should Congress falter in passing a budget, American citizens should brace for the far-reaching economic and political repercussions of an impending government shutdown.
Source: Reuters
