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Tuesday’s midterm elections come at a time when the United States is facing economic crisis. Recession forecasts have shifted more to “when” rather than “if” and inflation remains high. Americans are feeling the pain of rising interest rates and are facing a winter full of international tensions.
The results of Tuesday’s election will determine whether Congress can implement policies that will significantly change the economy.
Here’s what investors will be focusing on as they digest the election results.
Tax changes: Last week, President Joe Biden said he would tax Big Oil companies after they booked profits from high oil prices. Republicans won’t accept a global tax on oil company profits and don’t like tax hikes on the rich, said my colleague Paul R. La Monica.
“What does the midterms mean for the markets? If the Republicans get the House, the tax hike is dead in the water,” said David Wagner, managing director with Aptus Capital Advisors.
What about tax cuts? If Republicans take control of Congress, it would be difficult to lower taxes without the support of Democrats or President Biden, meaning there could be grandchildren without action.
Credit limit: The debt ceiling was last raised in December 2021 and will likely be hit by the Treasury sometime next year. This means that it must be reawakened to ensure that America can borrow the money it needs to run its government and to ensure that the US Treasury market is healthy, about $24 trillion.
A conflict seems to be brewing between the Democrats and the Republicans. House Republicans indicate they may request more cuts ceiling extension switch.
If the government is divided and brinkmanship continues, there could be bad news for the markets. Last as gridlock happened, under the Obama administration in 2011, the United States lost its AAA credit rating from Standard & Poor’s and stocks fell more than 5%.
Damage: Democrats have indicated they want to focus on some of President Biden’s proposed 2021 spending bill that has not become law, including expanding health care and child care taxes. A Republican victory or gridlock could put that to rest. Economists at Goldman Sachs also note that the success of democracy can expand Accountability for the federal budget will collapse, while Republicans will be able to avoid bailouts.
Social Security: Popular programs like Social Security and Medicare face long-term problems and the topic has become a hot topic on both sides of the aisle. The topic is so closely watched that even a controversial change could affect consumer confidence, say experts.
Democratic Senator Joe Manchin said last week that money needs to be changed to support Social Security and other programs that he said are “collapsing.” He said at the Fortune CEO conference that he wants to have unified legislation in the next two years to deal with programs that are facing “serious problems”. Republican Senator Rick Scott has proposed giving away nearly all of the federal ballots every five years. Analysts say this could put Social Security and Medicare at risk of being cut.
The Federal Reserve Board: Lawmakers have been increasingly vocal against the Federal Reserve’s interest rate hikes fight against inflation. Democratic Senators, Elizabeth Warren, along with Banking Chairman Sherrod Brown, John Hickenlooper and others have asked Fed Chairman Jerome Powell to reduce the pace.
Now, Republicans are getting involved. Senator Pat Toomey, the top Republican on the Banking Committee, asked Powell last week whether he would refuse to buy government debt if market conditions persisted. Expect heavy criticism from both parties after the election.
The market under President Biden started off with a bump, but as we head into the midterm elections, the market is picking up steam, says my colleague Matt Egan.
As of Monday, the S&P 500 is down 1.2% since Biden took office in January 2021. That marks the second-worst performance in a president’s 656 days in office since former President Jimmy Carter, according to CFRA Research.
Of the 13 presidents since 1953, Mr. Biden ranks ninth in terms of market performance during this period, ahead of former Presidents George W. Bush (-32.8%), Carter (-8.9%), Richard Nixon (-17.2%) and John F. Kennedy (-2.1%), according to CFRA.
In contrast, Biden’s two predecessors went into their first midterm elections as markets rallied. The S&P 500 rose 52.2% in the first 656 calendar days under former President Barack Obama and 23.9% under former President Donald Trump, according to CFRA.
American consumers also borrowed $25 billion in September, according to data just released by the Federal Reserve, as rising costs led to greater reliance on credit cards and other loans, says my colleague Alicia Wallace.
In normal economic times, that would be a big jump, said Matthew Schulz, chief financial officer at LendingTree, in a tweet. “However, this is the second lowest increase in the last year.” Economists expect monthly growth of $30 billion, according to Refinitiv estimates.
The data was not adjusted for inflation, which has risen for a decade and weighed heavily on Americans, pushing up wage gains and forcing consumers to rely more on credit cards and cash.
In the second quarter of this year, credit card fees saw the largest annual increase in more than two decades, according to separate data from the New York Federal Reserve. The third-party home loan and credit report should be released Nov. 15.
Correction: A previous article misstated the number of calendar days in the analysis and the performance of the stock market under different US presidents during that time.
