What midterm elections could mean for the US economy | CNN Business


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Tuesday’s midterm elections come at a time of economic vulnerability for the United States. Recession predictions have largely changed to “when” and not “if” and inflation remains stubbornly high. Americans are feeling the pain of rising interest rates and are entering a winter of geopolitical tensions.

The results of Tuesday’s election will determine the composition of a congressional body that has the potential to enact policies that will fundamentally change the fiscal landscape.

Here’s what policy issues investors will pay particular attention to when digesting the election results.

Tax changes: Last week, President Joe Biden suggested he could impose a windfall tax on major oil companies after they posted record profits on high gas prices. Republicans would be less likely to approve the windfall tax on oil company profits and generally do not support tax hikes for the rich, reports my colleague Paul R. La Monica.

“What do midterms mean for the markets? If Republicans get the House, tax increases are dead in the water,” said David Wagner, portfolio manager at Aptus Capital Advisors.

What about tax cuts? If Republicans take control of Congress, it would be difficult to pass major tax cuts without some backing from the Democrats or President Biden, meaning there could be boasting without much action.

Debt Limit: The federal debt ceiling was last lifted in December 2021 and is likely to be hit by the Treasury next year. That means it needs to be raised again to ensure that America can borrow the money it needs to run its government and ensure the smooth functioning of the U.S. Treasury bond market, in total about $24 trillion.

There seems to be a battle between Democrats and Republicans. House Republicans say they can ask for significant cuts in exchange for raising the ceiling.

If the government eventually becomes divided and the brinkmanship continues, there could be bad news for the markets. The last time such a stalemate Under the Obama administration in 2011, the United States lost its perfect AAA rating from Standard & Poor and its shares fell more than 5%.

expenses: Democrats have indicated that they plan to focus on parts of the fiscal agenda proposed by President Biden in 2021 that have not yet become law, including health insurance expansions and childcare tax cuts. A Republican victory or stalemate could prevent that. Goldman Sachs economists also note that a Democratic victory is likely to federal fiscal response in the event of a recession, while Republicans would rather avoid expensive aid packages.

Social Security: Popular programs like Social Security and Medicare face long-term solvency issues, and the topic has become a hot-button issue on both sides of the aisle. The topic is so closely monitored that even discussing changes could affect consumer confidence, analysts say.

Democratic Senator Joe Manchin said last week that spending changes should be made to support Social Security and other programs he said were “failing.” He said at a Fortune CEO conference that he was in favor of bipartisan legislation within the next two years to deal with rights programs that face “huge problems.” Republican Senator Rick Scott has proposed that nearly all federal spending programs be re-voted every five years. Analysts say this could make Social Security and Medicare more vulnerable to budget cuts.

the Federal Reserve: Lawmakers increasingly speak out against the target pace of Federal Reserve rate hikes fight inflation. Democratic Senators Elizabeth Warren, alongside bank chair Sherrod Brown, John Hickenlooper and others, have called on Fed Chair Jerome Powell to slow the pace of the increases.

Now the Republicans are coming in. Senator Pat Toomey, the top Republican on the Banking Committee, last week asked Powell to resist buying government debt if market conditions remain subdued. Expect more control from both parties after the election.

The stock market under President Biden started booming, but as we head into the midterm elections, the markets are crashing, reports my colleague Matt Egan.

On Monday, the S&P 500 is down 1.2% since Biden took office in January 2021, the second-worst performance in a president’s first 656 calendar days since former President Jimmy Carter, according to CFRA Research.

Of the 13 presidents since 1953, Biden is ranked ninth in stock market performance to date, beating only former presidents George W. Bush (-32.8%), Carter (-8.9%), Richard Nixon (-17 .2%) ) and John F. Kennedy (-2.1%), according to CFRA.

By contrast, Biden’s two immediate predecessors headed for their first midterm elections with stock markets surging. The S&P 500 climbed 52.2% during the first 656 calendar days under former President Barack Obama and 23.9% under former President Donald Trump, according to CFRA.

US consumers borrowed another $25 billion in September, according to recently released data from the Federal Reserve, as higher costs led to greater reliance on credit cards and other loans, my colleague Alicia Wallace reports.

In normal economic times, that would be a particularly big leap, Matthew Schulz, chief credit analyst for LendingTree, wrote in a tweet. “However, it is actually the second smallest increase in the past year.” Economists expected monthly growth of $30 billion, according to Refinitiv’s consensus estimates.

The data is unadjusted for inflation, which has hit a 10-year high and weighs heavily on Americans, outpacing wage increases and forcing consumers to rely more heavily on credit cards and their savings.

In the second quarter of this year, credit card balances saw their largest year-on-year increase in more than two decades, according to separate data from the New York Federal Reserve. The report on household debt and credit for the third quarter will be published on 15 November.

Correction: An earlier version of this article incorrectly stated the number of calendar days in the analysis, as well as the stock market performance under various US presidents during that period.

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