A House divided gives rise to debt ceiling jitters

THE battle among Republicans over the speakership of the US. House of Representatives has observers reaching for their popcorn as the presumed victor, Kevin McCarthy, failed in ten successive votes – so far – to claim the mantel.

As the battle wages on, with hardline hold-outs standing in the way, the chamber’s majority party and its apparent difficulty in reaching agreements is raising questions, particularly regarding upcoming debt ceiling risk, writes Alec Phillips, chief political economist at Goldman Sachs.

In a note released late Wednesday (just as a fourth vote failed), Phillips says those worries first arose in the form of the Republicans’ proposed rules package.

But in light of difficulty in settling on leadership, he writes “the debt limit this year is likely to culminate in a disruptive standoff. This would be characterised by increased market volatility and a sell-off in Treasury securities maturing around the debt limit deadline.” “The situation playing out in the House now underlines the risks around the deadline later this year,” Phillips adds. REUTERS