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As the U.S. House of Representatives struggles to elect its next speaker, analysts have been warning that the rocky process doesn’t bode well for how other issues will get resolved later this year.
“The ongoing civil war among House Republicans as they fail to elect a Speaker of the House is an ominous portent of how the debt-ceiling fight will go this summer,” said Tobin Marcus, senior U.S. policy and politics strategist at Evercore ISI, in a note on Thursday.
See: McCarthy comes up short again in seventh vote, as Gaetz backs Trump for speaker
The debt ceiling is a limit on federal borrowing, and budget watchdogs have called for a return to linking debt-ceiling increases to deficit-reduction measures or other provisions that would address excessive borrowing.
From MarketWatch’s archives (October 2022): Breaching the U.S. debt ceiling would be a ‘disaster’ for Americans, expert says, as possible showdown looms
The next standoff over the ceiling is likely to heat up near the end of this year’s first quarter as the government reaches that limit, according to Marcus. And the issue probably will come to a head at the end of the second quarter or early in the third quarter as the Treasury Department reaches the limit of its so-called extraordinary measures to avoid default, the Evercore analyst said.
“This feels much more to us like the debt standoff in 2011, which led to a U.S. credit rating downgrade, than it feels like 2021, when a political blame game over the debt ceiling was resolved fairly easily in the end,” Marcus said.
“We are not predicting default, but we expect this will be a major source of volatility
VIX,
and a drag on sentiment at a time when markets
SPX,
DJIA,
may not be prepared to shrug off uncertainty amid a softening economy.”
In 2011, the U.S. lost its triple-A debt rating from Standard & Poor’s for the first time in history, with the credit-rating agency saying the political system of the world’s top economy has become less stable.
Marcus said Evercore is “very concerned about the debt-ceiling standoff,” even as the advisory firm thinks the “most likely outcome is some kind of 11th-hour bipartisan legislative deal.”
Now read: Debt-ceiling showdown could shake up markets after midterm elections
