US Policy

Midterm Elections Are Days Away

L . Thomas Block
L . Thomas Block
Washington Policy Strategist
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With the midterm elections only a few days away the basic forecast seems unchanged; the Republicans will take control of the House and the Senate remains too close to call but polling indicates a movement to Republican candidates as election day approaches. While the summer saw voter interest shift to non-economic issues such as abortion and the Capitol riot on 1/6; recent weeks have seen increased focus on inflation and the economy and that seems to be helping Republicans.

One other note from my experience in partisan politics, Republicans have been more disciplined in staying on message. Republicans hammer home every bad economic number and Democrats have failed to develop a strong counter narrative. Additionally, Democrats seem to have wandered from the messages that were working earlier in the year and appear to lack the consistency that serves the Republicans so well.

Guessing and forecasts ends Wednesday morning.

The other big political/economic issue this past week was the Fed meeting and its action to raise interest rates by 75bps. I thought that having a FOMC meeting days before the election posed some risk, but Chair Powell and the Fed walked a fine line pretty adroitly from both a markets and political perspective.  In the central bank’s statement and the Chair’s presser there was something for both hawks and doves, though I believe the bias was on the hawkish side during the Chair’s press conference. 

The Chair was clear that he believes the risk remains raising rates too slowly not tightening too quickly. I thought his comments about having the tools to deal with overly tightening was a good clue of his view that there is a policy path they can pursue if the economy cools too quickly.  On the other hand he said that the risks of a recession vs a soft landing have increased.

For the doves he clearly opened the door for a 50bps increase in December, but I think a hot CPI number or other bad data would lower that chance, I don’t think another 75pbs is off the table.  I think it was also interesting that he really poured cold water on a pause.  Powell tried to telegraph that the next step seems to be a slower rate of increase not a pause.

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L . Thomas Block
L . Thomas Block
Washington Policy Strategist
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