Without a budget deal, the government will shut down at midnight.
In its efforts to work out a deal, members of Congress are trying to negotiate terms related to Obamacare and the debt ceiling, which we will hit later in October.
So, what does this do to the credibility of the U.S. in the eyes of its creditors.
Goldman Sachs’ Alec Phillips wrote about this in a August 16 note to clients.
Standard & Poor’s and Moody’s revised their outlook on the US rating from negative to stable earlier this summer, with AA+ and AAA ratings respectively. Given this, it seems unlikely that the debt limit debate would trigger negative ratings action from either agency unless Congress actually missed the deadline.
Fitch has indicated that the projected level of US debt is slightly below the level it views as inconsistent, so a downgrade from them on fiscal fundamentals appears unlikely. However, for now Fitch maintains a negative outlook on the rating, and noted in June that “failure to raise the federal debt ceiling in a timely manner (ie. several days prior to when the Treasury will have exhausted extraordinary measures and cash reserves) will prompt a formal review of the U.S. sovereign ratings and likely lead to a downgrade.” Fitch’s review looks likely to be completed before year end, probably after the upcoming fiscal deadlines have passed.
In the wake of the 2011 debt ceiling debate, the U.S. saw its AAA credit rating stripped by S&P. It’s worth noting, however, that interest rates actually trended lower for two years.
Here’s a look at what the stock market did around recent “policy incidents.”
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