US midterms 2022: How the election will affect the country’s economy

The US economy is very vulnerable, which makes Tuesday’s midterm elections so important. Predictions of recessions now tend to focus more on “when” than “if,” and inflation is still persistently high. The agony of rising interest rates is being felt by Americans, who also have to deal with a winter of geopolitical unrest.

The outcome of the election on Tuesday will determine the composition of a Congress that has the power to pass legislation that might significantly alter the budgetary environment. Here is a look at the policy topics that investors will be particularly interested in as they analyse the election results.

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Federal Reserve

In an effort to combat inflation, the Federal Reserve has started raising interest rates at a faster rate than before. Democratic Senator Elizabeth Warren has urged Fed Chairman Jerome Powell to decrease the rate of hikes, along with Sherrod Brown, John Hickenlooper, and others. Republicans are now participating. After the elections, both parties will be under closer scrutiny.

Tax reductions

If Republicans gain control of Congress, it will be difficult to enact major tax cuts without the support of Democrats or President Biden, which means there may be grandstanding but little action.

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Social Security

Long-term solvency difficulties are present for well-known programmes like Social Security and Medicare, and the subject has grown divisive on both sides of the political spectrum. Even debating adjustments, according to analysts, might have an effect on consumer confidence because the issue is so keenly watched.

Debt limit

The Treasury will probably raise the federal debt ceiling at some time in 2023, having last done so in December 2021. It will therefore need to be raised once more in order for America to be able to borrow the funds required to run its government and maintain the smooth running of the market for US Treasuries, which currently stands at about $24 trillion. It appears that Republicans and Democrats are getting into a dispute. Markets may suffer if the government becomes divided and the brinkmanship continues.

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Spending

The analysts at Goldman Sachs also point out that a Democratic victory would probably raise the federal government’s fiscal response in the event of a recession, whereas a Republican victory would make costly aid packages less likely.