BofA: US Midterms
Our baseline assumes Democrats flip the House while Republicans retain the Senate. We expect that to produce gridlock, with little major legislation beyond a modest defense supplemental that Includes some Democratic priorities, such as healthcare spending. Given the slow spend-out of defense funding, we do not expect this to materially affect growth over the next two years. Gridlock would also seemingly be positive news for markets as stocks have generally thrived when Congress is split. There are two upside risks. First. Democrats could use appropriations fights or the debt limit to extract policy concessions, including additional spending or higher taxes on the wealthy. But recent history suggests these episodes rarely produce major policy changes. Second, Democrats, populist Republicans and the President could find common ground on issues such as healthcare, resulting In more deficit-financed spending. The main difference between a split Congress and a Democratic sweep is control over nominations. If Democrats also take the Senate, they could block or shape appointments to the Fed. judiciary and other positions, potentially producing more moderate nominees or leaving some seats
Our baseline assumes Democrats flip the House while Republicans retain the Senate. We expect that to produce gridlock, with little major legislation beyond a modest defense supplemental that Includes some Democratic priorities, such as healthcare spending. Given the slow spend-out of defense funding, we do not expect this to materially affect growth over the next two years. Gridlock would also seemingly be positive news for markets as stocks have generally thrived when Congress is split.
There are two upside risks. First. Democrats could use appropriations fights or the debt limit to extract policy concessions, including additional spending or higher taxes on the wealthy. But recent history suggests these episodes rarely produce major policy changes.
Second, Democrats, populist Republicans and the President could find common ground on issues such as healthcare, resulting In more deficit-financed spending. The main difference between a split Congress and a Democratic sweep is control over nominations. If Democrats also take the Senate, they could block or shape appointments to the Fed. judiciary and other positions, potentially producing more moderate nominees or leaving some seats vacant.
The key upside risk is if Republicans push to advance priorities such as higher defense spending through reconciliation during the lame duck session. That would make the fiscal outcome and economic outlook look more like a Republican sweep.