McCarthy Speaker Defeat Raises Risk of Credit Downgrade, Potential Economic Damage

Ousting of Rep. Kevin McCarthy as House Speaker could lead to a credit downgrade that damages the US economy.

In 2011 and 2022, credit downgrades by S&P and Fitch led to stock selloffs and higher yields.

Now only Moody's rates US debt as AAA, and it warned last week a shutdown could prompt a downgrade.

McCarthy's ouster is an even clearer sign of "intensifying political polarization" than a shutdown.

A Moody's downgrade could spike yields further, raise borrowing costs, add pressure on the economy, and increase recession odds.