U.S. Downgrade Might Affect Munis

State governments would be evaluated in light of the flow of federal funds and the potential impact of fiscal contraction on a state’s economy. Liquidity and financial flexibility would be key considerations. There would likely be no sector-wide rating actions.

Local governments would be evaluated on a case by case basis but widespread rating actions weren’t anticipated. Higher interest rates as a result of the downgrade might potentially pressure financially weaker governments, especially those with variable-rate exposure.

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