By Nicole Hong
A failure by the U.S. government to raise the country's debt
limit would result in a more-negative outcome for financial markets
and the economy than a government shutdown, Moody's Investors
Service said in a report Tuesday.
Congress has until Sept. 30 to pass a federal budget, or else
the government will shut down. In addition, the U.S. Treasury is
set to bump up against its $16.7 billion borrowing limit around
mid-October, unless legislators move to raise the debt ceiling.
While Moody's expects the government to both avoid a shutdown
and increase the debt limit, the rating agency said market
participants would view a failure to increase the debt limit as the
event with the higher probability of sovereign default. By
contrast, if the government shut down, it still could make interest
payments on its debt, Moody's said.
The perception that the U.S. government may default on its debt
"could roil financial markets and damage business and consumer
confidence," the agency wrote in the report.
Moody's gives the U.S. its top sovereign rating of triple-A,
with a stable outlook. The firm raised its outlook on the U.S.
rating from negative two months ago, citing an improved forecast
for the U.S. government's debt trajectory.
Fitch Ratings also rates the U.S. at triple-A, although with a
negative outlook. Standard & Poor's Ratings Service has the
U.S. at double-A-plus, one notch below the top rating, with a
stable outlook.
Write to Nicole Hong at nicole.hong@wsj.com.
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