US Credit Rating Would Hold Firm Even With Government Shutdown: Fitch

On the heels of upheaval in the U.S. House of Representatives, Fitch Ratings remains unwavering in its stance on the country’s credit. A potential U.S. government shutdown following the removal of U.S. Rep. Kevin McCarthy as House speaker will not impact the nation’s credit rating, Fitch said Wednesday.

Following McCarthy’s unseating from his leadership role amid a revolt by staunch Republicans over McCarthy’s consensus with Democrats to thwart a shutdown, Bloomberg reported Fitch’s stance on the matter. Analysts, including those from Goldman Sachs, have said the political development may escalate the chances of a shutdown after temporary funding expires next month.

Richard Francis, Fitch’s co-head of Americas sovereign ratings, told Bloomberg that political tension during government funding negotiations is expected to persist, potentially leading to a shutdown later this year.

Nevertheless, he emphasized that even if a shutdown does occur in the near term, it would not impact Fitch’s “AA+’/Stable” sovereign rating of the United States.

All Eyes On Moody’s

Fitch previously downgraded the U.S.’s credit rating from AAA to AA+ in August.

The firm pointed to a “steady deterioration” in governance standards over the last two decades, particularly in fiscal and debt matters, as the cause.

U.S. Treasuries have sold off substantially in response to Fitch’s rating action, with the popular iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) tumbling over 10% since early August.

Conversely, S&P Global Ratings and Moody's Investors Service Inc. have chosen to remain silent on the House leadership change.

Moody's, now the only major ratings firm still giving the U.S. a top rating, cautioned in September that its confidence is wavering in view of a possible shutdown.

As per Moody’s assessment, the emergence of a government shutdown would draw attention to the weaknesses in the institutional and governance strength of the United States in comparison to other top-rated governments.

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