The ouster of Republican leader Kevin McCarthy as speaker plunged the House of Representatives into chaos weeks before a funding deadline for the government adding fuel to a perception by investors that the world’s largest economy is struggling to get its fiscal house in order.
A group of hardline Republicans led by Representative Matt Gaetz from Florida, angry at McCarthy’s bipartisan deal to pass a stopgap spending measure that kept the government open until at least November 17, voted along with Democrats to boot the speaker from his job. It was the first time in U.S. history that the House of Representatives voted to remove its speaker.
Republican leaders said they will take time away from the body and be back next week with the aim to vote in a new leader by Wednesday. Representative Patrick McHenry from North Carolina will serve as speaker in the interim.
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Tuesday evening events illustrated how political polarization, divided government and small majorities in both legislative chambers have made policymaking turbulent and uncertain, analysts say.
“This has really been ongoing all year. It started in January with numerous votes for Speaker, to start. Obviously, we had the debt ceiling ongoing all spring. We’ve been worked up about a shutdown for the past several weeks,” Mike Pugliese, an economist at Wells Fargo told Newsweek. “I kind of view this week’s developments as an ongoing source of uncertainty that we’ve had for months now, and it doesn’t seem likely that it’s going away anytime soon.”
Following a stand-off in Washington over raising the government’s $31 trillion debt limit, the ratings agency Fitch downgraded the U.S. credit rating a notch lower from its top level. Despite the eventual agreement over the debt limit in Congress, Fitch made the move as it expected the “erosion of governance” to continue.
“There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” Fitch said. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
In September, Moody’s, another rating agency, warned that a government shutdown would show how flawed fiscal policymaking has become in the U.S., the world’s largest economy.
“It would underscore the weakness of U.S. institutional and governance strength relative to other advanced economies,” Moody’s said. “In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength.”
In a few weeks, the House will once again have to come to an agreement over funding the budget and averting a government shutdown. While some names have been floated as potential candidates to succeed McCarthy, it’s unclear who can unite the fractious Republican house members and garner enough support to be the next Speaker.
The uncertainty has some on Wall Street forecasting a shutdown in November. Goldman Sachs suggested, according to Bloomberg, that the divisions that McCarthy faced within his party over spending will saddle the next leader as well and increase the risk of legislators failing to reach a new agreement to keep the government operational beyond next month.
Wells Fargo’s Pugliese said that the budget deadline in November will be another test of whether a new Speaker can change the dynamic that has characterized the current House of Representatives.
“I think the thing we’re all waiting for is what’s going to happen next,” Pugliese said. “Who ends up being the next Speaker, is it quick? Is it today, is it two weeks from now?”
McCarthy had made a variety of concessions within his own party back in January, he pointed out, including the rule that any House member can bring forward a vote to vacate a Speaker that led to his downfall.
“Does the new speaker have to make those concessions, different concessions? I mean the list of questions kind of goes on and on and on here,” Pugliese told Newsweek. “It’s a little hard to know where November will shake out without knowing the answer to those questions.”