Fitch Ratings-London/New York: The U.S. government shutdown does not have near-term implications for the ‘AA+’/Stable U.S. sovereign rating but highlights long-standing policymaking weaknesses and political brinkmanship around budgetary issues, Fitch Ratings says. The shutdown began on Oct. 1 after Congress failed to either agree on the 12 appropriations bills required to fund discretionary federal programs or enact a continuing resolution (CR) to maintain funding at prior levels.
A shutdown can see affected federal agencies halt operations and be obliged to furlough employees (with some exceptions), although employees are entitled to payment for this period once the relevant appropriations are passed. Congress last met the Sept. 30 deadline to pass all 12 bills by the start of the new fiscal year in 1996, and the most recent shutdown was in 2018-2019. Regular reliance on CRs to keep government operations running demonstrates the continued weaknesses in fiscal policymaking since we downgraded the U.S. from ‘AAA’ in 2023.
This week’s shutdown reflects disagreement on fiscal policy measures, notably previously enacted cuts to Medicaid and the ending of health insurance subsidies under the Affordable Care Act, as well as Democrat efforts to counter perceived overreach by the Presidency and reassert Congressional control of spending measures. A CR proposed by Democrats in September pledged to protect Congress’s “power of the purse”. The Trump administration has said that a shutdown could lead to mass layoffs among federal employees.
Fitch noted that the Trump administration is testing checks and balances in U.S. policymaking when the agency affirmed the U.S. at ‘AA+’/Stable on Aug. 22. In addition to matters relating to how the administration appropriates Congressionally approved budgetary allocations, this has also manifested in frequent criticism of Federal Reserve Chairman Jerome Powell and the exit of the Bureau of Labor Statistics head, and in President Trump’s efforts to fire Fed Governor Lisa Cook.
Fitch will continue to assess developments around the U.S. regulatory environment, rule of law, and institutional checks and balances as part of its sovereign credit analysis. Despite increased uncertainty around U.S. policy and the possible erosion of institutional checks and balances, we expect the U.S. dollar’s predominant reserve currency status – a material sovereign rating strength – to continue for the foreseeable future.
Fitch forecasts the general government (GG) deficit will narrow to 6.8% of GDP in 2025 from 7.7% in 2024, partly due to a surge in tariff revenues, which we now expect to reach USD300 billion (1% of GDP) this year, up from USD77 billion in 2024. Reversing the previously enacted Medicaid cuts would not meaningfully impact our near-term deficit forecasts as the effects would mostly be felt after 2028.
Nevertheless, such intractable disputes underscore an inability thus far to address the U.S.’s longer-term challenges to the public finances, due to population ageing and entitlement spending, within the current fiscal policy framework. We forecast GG deficits to rise to 7.4% of GDP in both 2026 and 2027 as tax cuts in the OBBBA reduce revenues. The GG debt-to-GDP ratio rises throughout our forecast period, reaching 122% by YE 2027, from 114.6% at YE 2024. This is more than double the ‘AA’ median of 48.1% of GDP at YE 2024 (see Global Sovereign Data Comparator: September 2025).
The potential for a government shutdown to adversely affect economic growth would depend on its scope and duration. Fitch’s updated U.S. GDP growth forecasts in the recent Global Economic Outlook – September 2025 expect growth to slow to 1.6% this year and next, from 2.8% in 2024, before accelerating to 2.1% in 2027.