Another federal government shutdown would have a strong negative effect on the economy, Moody’s Investors Service said Tuesday, because it would start to raise questions about whether the U.S. would be able to pay its debts.
“If another shutdown occurs, there could be a more severe impact on the U.S. economy than during the recently ended shutdown,” the rating agency announced, according to Reuters.
The effects of the shutdown that began on Dec. 22 and ended on Jan. 25 “have been concentrated with limited ramifications for the broader economy,” Moody’s found. That would change if another shutdown happened next month because it would “complicate negotiations over the debt ceiling,” sparking fears about whether the Treasury Department would delay debt payments.
A second shutdown is a real possibility because President Trump and Congress have agreed to reopening the government only through Feb. 15. The broader budget disputes that sparked the shutdown, including Trump’s demand for more than $5 billion in funding for a U.S.-Mexico border wall, remain unresolved.
A congressional deal reached last year to raise the debt ceiling — the total amount of debt the federal government can carry — expires at the beginning of March. A shutdown could therefore tie increasing the debt limit, itself often a controversial issue, into the broader budget debate. That could impact the issuance of Treasury bills and increase market volatility, said Moodys.
[Related: The shutdown will end up costing the economy just $3B, budget office estimates]
