In an unprecedented step, Kevin McCarthy has been ousted as speaker of the House in a 216-210 vote. Ultimately 8 Republicans joined a unified Democratic Caucus in removing him from his post. Patrick McHenry (R-NC), current chair of the House Financial Services Committee, will serve as temporary speaker. McHenry is a well-respected member of the House and should calm any short-term market concerns over leadership. Near- term we see limited market reaction, but over the medium-term, focus will be on the government funding debate and the ability for Republicans to retain their majority in the 2024 election.
What is the process going forward for filling the role of speaker?
Under rules to preserve the continuity of government, the speaker submits a private list of individuals to serve in temporary capacity until the whole House can select a replacement. Following the vote to remove McCarthy, it was announced that Congressman Patrick McHenry (R-NC) was at the top of this list and will serve in this capacity. We expect the House to take votes to fill the position of speaker permanently later throughout this week; many names are being floated with three most in focus likely McHenry, Emmer, and Scalise.
It is also possible that McCarthy could return as speaker if his supporters rehash the early-January vote-a-rama to deny a lasting victory to the Republicans who voted to take down his speakership. An alternative but unlikely scenario at this point would be the selection of a Democrat, such as Minority Leader Jefferies (D-NY), as anyone with a majority of votes is eligible as speaker.
What can the House do without a formal speaker?
Basically everything. Unlike at the beginning of this Congress, the House has already adopted a formal rules process governing their actions and have formed their committees. The House can proceed with any necessary business while there is a temporary speaker. This will be interrupted with votes to select a new speaker – which is done by roll call and is time-consuming.
We would assign limited market impact to the removal of Speaker McCarthy. The selection of Patrick McHenry as temporary speaker should also calm any potential near-term concerns. McHenry is well-respected in Congress and has strong ties to Wall Street and the business community. We view the recent market weakness tied to the upward march of the 10-year and stronger-than-expect JOLTS data.
The next test of the House will be on government funding, which is set to expire on November 17. Every moment the House is focusing on who will be speaker is time the House is not working on funding the government for the full remainder of the fiscal year. A future Republican speaker could be less willing to cut a deal after seeing Republican opponents of McCarthy using his bipartisan actions on the debt limit and continuing resolution used against McCarthy – potentially leading to a protected shutdown.
2024 & longer-term Impacts.
Assuming someone other than McCarthy becomes permanent speaker, this could hurt Republican chances to maintain the majority in the House in 2024. One of the major roles of the modern speaker of the House is fundraising on behalf of their party. It takes time to set up a national fundraising network. The process could result in Republicans losing out on millions of fundraising dollars that could be particularly useful in swing districts.
With this new precedent, speakers of either party will have to be concerned that a small number of members from their party could join with the opposing party to oust them from their role. The potential for cutting deals with the opposing party could decrease.
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