Fitch: "First-ever removal of US House Speaker... No impact on credit rating"

Concerns Over Federal Government Shutdown Reality
"Crisis Factors Reflected During Demotion 2 Months Ago"

Although the first-ever removal of a House Speaker in U.S. congressional history has increased the risk of a federal government shutdown, it is expected that there will be no downgrade of the United States' credit rating as a result. Since existing credit rating agencies have already demanded improvements in the U.S. government's fiscal soundness and taken rating actions, further adjustments are unlikely.

Credit rating agency Fitch office located in New York, USA. [Image source=EPA Yonhap News]

On the 4th (local time), Richard Francis, Senior Director at Fitch Ratings, one of the world's top three credit rating agencies, stated, "A shutdown that could occur within a few weeks at the earliest will not affect the U.S. credit rating," explaining that "the risk factors were already reflected when the U.S. credit rating was downgraded two months ago." He forecasted, "Tensions in Congress over next year's budget will continue, and the possibility of a federal government shutdown at the end of this year cannot be ruled out." However, he noted that these situations have already been factored into the rating downgrade.

In August, Fitch downgraded the U.S. sovereign credit rating from AAA to AA+. This was the first time Fitch had lowered the U.S. credit rating since 1994. At that time, Fitch cited the deterioration of U.S. governance due to repeated political conflicts over the debt ceiling over the past 20 years as the reason for the downgrade. The political stalemate and repeated brinkmanship tactics were seen as eroding trust in the U.S. government's fiscal management. Two months before the downgrade, a debt ceiling agreement was passed dramatically with only two days left before the U.S. faced a potential default.

Along with Fitch, S&P, also one of the Big Three credit rating agencies, stated that while a shutdown would impact economic activity, it would not lead to a credit rating downgrade. Among the three agencies, S&P was the first to downgrade the U.S. credit rating to AA+ in 2011 and has maintained that rating since.

On the other hand, Moody's diagnosed at the end of last month that the likelihood of a shutdown has increased, shaking confidence in the U.S. Among the Big Three credit rating agencies (Fitch Ratings, Moody's, and Standard & Poor's (S&P)), Moody's is the only one currently maintaining the U.S. credit rating at AAA.

The U.S. Congress must elect the next House Speaker before agreeing on next year's budget by the 17th of next month. If the election of the next Speaker is delayed, the budget approval process may also be delayed, leading to a federal government shutdown. Even if the next Speaker is elected, the pressure from the Republican hardliners (Freedom Caucus), who triggered this unprecedented removal of the House Speaker, is expected to cause difficulties until the final budget agreement is reached.

Bloomberg reported, "Wall Street insiders, including those at Goldman Sachs, view McCarthy's removal as increasing the likelihood of a federal government shutdown next month."

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