What The Us Economy Could Look Like After The Midterm Elections

The United States economy is weak right now, which makes Tuesday’s midterm elections all the more important. Predictions of a recession have shifted to “when,” rather than “if,” and inflation has refused to budge. Amid mounting international tensions and the discomfort of rising interest rates, Americans are feeling the pinch.

The makeup of Congress, which might pass legislation drastically altering the current budgetary situation, will be decided by the election results on Tuesday.

What The Us Economy Could Look Like After The Midterm Elections
What The Us Economy Could Look Like After The Midterm Elections

Take a look at the policy concerns that investors will be focusing on as they process the election results.

After Big Oil made record profits from rising gas prices, President Joe Biden hinted last week that he would impose a windfall tax on the industry. According to my colleague Paul R. La Monica, Republicans are typically opposed to tax hikes on the wealthy and are less inclined to approve of the windfall tax on oil industry profits.

Exactly what impact will the midterm elections have on the stock market? A portfolio manager at Aptus Capital Advisors, David Wagner, stated that tax increases were doomed if the Republicans won the House.

What about lowering taxes? It seems unlikely that Republicans would be able to pass significant tax cuts without the support of Democrats or President Biden if they were to gain control of Congress.

The debt ceiling was last increased in December 2021, therefore the Treasury will likely reach it sometime in 2020. Consequently, it will need to be increased once more to ensure that the United States can borrow the money it needs to run its government and keep the market for US Treasuries, which is currently worth almost $24 trillion, functioning smoothly.

The Democrats and the Republicans appear to be on the verge of a fight. It appears that the Republicans in the House will demand significant cuts in spending in exchange for a ceiling increase.

It might be bad news for markets if the government ends up divided and if the brinkmanship continues. During the Obama administration, a similar stalemate led to a decline of almost 5% in stock prices and the loss of the United States’ pristine AAA credit rating from Standard & Poor.

When it comes to spending, Democrats have signaled their intent to prioritize expanding health coverage and child care tax credits, two items from President Biden’s budget strategy proposed in 2021 but not yet enacted into law. It might be put on hold if the Republicans win or if Congress remains deadlocked. Economists at Goldman Sachs point out that a Democratic victory may enhance the federal fiscal response to a recession, while a Republican victory might lead to fewer and smaller relief packages.

Social Security: Long-term funding for popular programs like Social Security and Medicare has become a divisive subject. Analysts warn that because of how carefully everyone is watching the matter, even the discussion of potential adjustments could affect consumer confidence.

To prevent Social Security and other programs from “going insolvent,” Democratic Senator Joe Manchin stated last week that expenditure adjustments are necessary. He recently voiced support for bipartisan action within the next two years to address the “tremendous problems” facing entitlement systems at a Fortune CEO conference. Senator Rick Scott (R-Florida) has suggested a plan to put practically all government spending programs up for a vote every five years. Experts warn that this might make programs like Medicare and Social Security more susceptible to budget cuts.

When it comes to fighting inflation, the Federal Reserve has been raising interest rates, but lawmakers have been increasingly vocal in their opposition to these rate hikes. A number of politicians have urged Federal Reserve Chair Jerome Powell to decrease the pace of rate hikes, including Elizabeth Warren, Sherrod Brown (the Democratic chair of the Senate Banking Committee), John Hickenlooper, and others.

The Republican Party is now actively participating. Last week, the ranking Republican on the Banking Committee, Senator Pat Toomey, urged Powell to refrain from buying government securities if market conditions remained sluggish. Upon regaining power, both parties will be more vigilant in their investigations.

 

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