Five ways the 2022 midterm elections could impact the US economy

Five ways the 2022 midterm elections could impact the US economy

The 2022 midterm elections were set to usher in a “red wave” in the House and potentially the Senate, triggering a heavily Republican US legislature in 2023.

Republican leaders, sensing a wave of optimism in the polls and Americans’ dissatisfaction with the economy, teased economic plans and even sparked outrage after they suggested cutting rights spending during the the next legislative session.

But on election night, the midterm results painted a different picture for the future Congress.

Forecasters still anticipate a GOP-led House, but their majority is expected to be narrow. The fate of the Senate also hangs in the balance, and Democrats landed a seat to replace incumbent Sen. Pat Toomey (R-Pa.).

Control of both chambers is still up for grabs as states continue to count the votes, but deadlock in the next session of Congress is almost inevitable. The implications for the US economy could be enormous.

Even a narrow Republican majority in either chamber would prevent President Biden and the Democrats from passing sweeping legislation along party lines. Bipartisan standoffs over public funding and the debt ceiling may be common, but major legislative advances will be rare.

A GOP takeover of the Senate would also force Biden to find Republican support for his next slate of administrative nominees.

Here are five ways the 2022 midterms could affect the economy.

Less federal spending

Republicans focused their midterm pitch largely on worries about high inflation and the likelihood of the United States slipping into a recession next year. GOP lawmakers pledged to rein in federal spending, which they blamed for high inflation, if they had the chance to lead the House or Senate.

A slim majority in either chamber would give Republicans the power to block any spending bill they deem too generous and force Democrats to propose cuts to win their support. But Republican leaders could also struggle to move spending bills if conservative lawmakers oppose possible bipartisan deals.

“The majority in the House will likely be 10 seats or less for either party, making governance difficult at best. The mid-terms essentially ended in a stalemate,” wrote Brian Gardner, chief Washington policy strategist at investment bank Stifel, in an analysis Wednesday.

“Given the rift ahead, passing the public spending bills and raising the debt ceiling will be even more difficult than expected.”

Higher risk of debt ceiling default

Several Republican lawmakers and even former President Trump himself have called on GOP leaders to use the federal debt ceiling as leverage in negotiations over federal spending. As GOP leaders have pledged to ensure the US won’t default on debt, they may struggle to convince hardline conservatives to make a deal despite the serious implications of overspending. of the debt ceiling.

The United States has already suffered credit downgrades and financial market turmoil following clashes in 2011 and 2013, and the country faces even greater risks of financial crisis as the economy faces headwinds.

“The odds of something worse than the 2011 tightrope strategy are higher than ever and the consequences would be even worse than before,” tweeted Jason Furman, former chairman of the White House Council of Economic Advisers under former President Obama.

“In 2011, getting closer to the brink led to a huge collapse in confidence, repercussions in financial markets and a deterioration in US debt,” he continued.

Stimulus during a recession will be less likely

Republicans will have little incentive to help prop up the economy if the United States falls into recession on Biden’s watch, even if they control the House or Senate.

GOP lawmakers are reportedly struggling to greenlight more economic relief after blaming stimulus measures rolled out by Biden in March for the surge in high inflation that helped them win a majority. Republicans might also find it easier to defeat Biden and Democrats if they can blame them for a recession, a dynamic some GOP lawmakers have welcomed.

“If the United States enters a recession in 2023, a divided Congress will struggle to pass a fiscal stimulus bill that leaves the Federal Reserve as the primary institution responsible for setting the country’s economic policy,” Gardner wrote. .

Push Biden amid nominations

Although the House plays no role in federal appointments, a GOP-controlled Senate would force Biden to appoint officials who could win enough bipartisan support to go through the upper house. Senate Minority Leader Mitch McConnell (R-Ky.) opened up several dozen administrative and judicial seats when the GOP ruled the Senate during Obama’s final two years and would likely force Biden to find common ground with Republicans to take other seats.

Potential vacancies at the Treasury Department, Federal Reserve and other financial regulators could become high-stakes battles between Democrats and Republicans, even in an evenly divided Senate where Vice President Harris holds the deciding vote.

These difficulties would also prevent Biden from cementing part of his economic program.

“If the Republicans win the Senate, or even if it remains 50-50, the progressives will not be able to have their people confirmed,” wrote Ian Katz, director of the research firm Capital Alpha Partners, in an analysis.

Stricter oversight from federal regulators.

If the GOP captures the House or Senate, federal financial regulators can expect intense scrutiny from Republican-led committees and more political pressure on several polarizing initiatives.

Republican lawmakers have fiercely opposed efforts by Biden appointees to increase attention to climate-related financial risks, expand public company disclosures, and step up efforts to police cryptocurrencies.

“GOP lawmakers will hit regulators with a tsunami of paper: letters, subpoenas and requests for testimony,” Katz wrote.

“A lot of paperwork can potentially slow down an agency. Impossible to know how much, but it is not nothing.

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