Fitch: No downgrade risk from government shutdown — yet

A shutdown of the federal government would not lead to a downgrade of the nation’s credit rating, but a protracted battle over the debt limit could, according to a top credit rater.

Fitch Ratings said Wednesday that failure to pass a funding bill before the government shuts down at the end of September would not pose an immediate risk to the nation’s top-shelf credit rating. But that “AAA” rating could be at risk if a fall shutdown serves as a sign of a bigger fight to come toward the end of the year, when Congress has to address the debt limit.

{mosads}The nation’s $18.1 trillion borrowing cap will likely need a boost sometime in November and December. Congressional leaders have indicated they have little interest in risking default as a political ploy, but any risk of a default will be closely watched given the catastrophic consequences that could come with the U.S. missing critical debt payments.

In fact, it was the brutal battle over the debt limit in 2011 that led to the first ever downgrade of the nation’s credit rating by Standard & Poor’s. While the nation avoided default that time, the rater argued the last-minute drama drove questions about whether the nation’s politicians are able to properly steer the nation’s finances.

Four years later, Washington is potentially facing its second shutdown in three years, leading some to begin wondering again if the U.S. political system is up to the job.

Fitch said that it expects Congress will pass a short-term continuing resolution to keep the government open before the end of September, setting the stage for broader talks about government funding and the debt limit toward the end of the year.

While the U.S. remains the most attractive country to purchase government debt and the U.S. dollar is the world’s reserve currency, Fitch cautioned that the nation’s reputation could take a hit with a nasty fight this fall.

“Sustained fiscal uncertainty could have a detrimental effect on the US economy and lower market confidence in the authorities’ ability to deal with longer-term fiscal challenges,” the rater said.