Kevin McCarthy’s ouster from the top leadership post in the US House of Representatives could cause potential chaos within House Republicans – and long-lasting headaches for the US government.
The House will now need to elect a new speaker, but there's no clear alternative to McCarthy with support needed to win the gavel.
The outgoing Speaker said he might endorse a successor but did not confirm if he would remain in Congress.
Republican Matt Gaetz led the effort to oust McCarthy, with the vote being 216 to 210. Eight Republicans voting to remove McCarthy.
House Majority Leader Steve Scalise is said to be considering a potential speakership bid.
The House is expected to hold a speaker candidate forum in a week.
McCarthy narrowly avoided a government shutdown last weekend after he successfully facilitated an agreement between Republicans and Democrats.
The recent political turmoil in Washington, including the risk of a government shutdown and potential default, could lead to another credit rating downgrade for the US, potentially impacting the economy significantly.
There is concern that credit rating agency Moody's may take notice of these developments. Moody's is the last of the three major credit rating agencies to grant the United States its highest AAA rating, especially as markets were already experiencing high volatility and instability before the vote to oust McCarthy.
“While lawmakers managed to reach a last-minute agreement to avoid defaulting on the debt, doubts about the government's credibility in terms of debt repayment within the allotted time frame have grown stronger,” Rania Gule, market analyst at XS.com commented.
Gule noted that US Treasury bond yields reached levels not seen in over a decade, raising concerns among investors that rising interest rates could further stress the housing market.
A Moody's downgrade could lead to higher Treasury bond yields, highlighting the growing risks associated with holding US debt, which could increase the chances of interest rate hikes on US bond yields and negatively impact stock indices, gold, currencies, and dollar-denominated assets.
The good news: major US indices bounced back on Wednesday, slow to regain ground following heavy losses on Tuesday.