Why the Republicans have the advantage in the US mid-term elections
What are the prospects for the mid-term elections in the US? The analysis by Libby Cantrill, Managing Director, Public Policy of PIMCO
36 days before the Midterm election in the United States, despite the improving political environment for President Biden, falling gas prices and significantly higher enthusiasm for Democrats than a few months ago, it is still very likely that the House of Representatives steps under Republican control.
This is likely for several reasons, including a less competitive environment among Republicans, a slight district reorganization advantage for Republicans, more retirements among key Democrats in poised districts, and an still challenging economic environment for Democrats. The Senate, on the other hand, was – and continues to be – more destined for the ballot, with a slight advantage for Democrats in retaining the Senate, however in the end control of the Senate will likely only be decided in a handful of states.
It is important to note that no matter which party has the majority in the Senate, the winning party will still have a very narrow majority and nothing like a filibuster-proof or veto-proof majority that a party would need to really move the balance needle.
As a result, the market implications of a Republican House versus a Republican House and Senate are mostly the same: less fiscal support, more administration scrutiny, and more political uncertainty about more mundane Congressional tasks, such as funding. government activities and raising the debt ceiling. The biggest difference if Republicans controlled the House and Senate is that they would be able to throw more "sand in the gears" for President Biden's Senate appointments, but moderate Democrats are doing it anyway. For example, with the failure to appoint the Office of the Comptroller of the Currency (OCC), the vice-presidency of supervision of the Fed and the director of the Office of Management Budget (OMB) et cetera.
The room
Recall that there are 435 seats in the House, all up for grabs in the November elections, and the Democrats in November will have a majority of only 5 seats, which means a very small margin for error. With all the seats up for grabs, the House is considered a national election, more indicative of the country's mood and general spirit, and typically a referendum on the ruling party. To this end, the national mood, while improving, is still negative, with a large minority of voters thinking the country is on the wrong track; inflation and the economy continue to be one of the most important, if not the most important issues for both Republican and Democratic voters, while at the same time a majority of voters think Republicans are better prepared to handle the economic sphere. The Generic Ballot – the poll that historically has relatively high predictive power in midterm elections for the House – still predicts parity, but electoral experts have found that historically Democrats need a significant lead in the Generic Ballot to overcome some of the structural distortions of this survey.
An important element, according to the Cook Political Report, is that Democrats should "get their fill" of seats in the balance in the House; according to this analysis, there are 31 seats in the balance and, to maintain the majority, the Democrats should win 26 out of 31. The situation is made even more difficult by the fact that 22 of the 31 seats in the balance are presided over by Democrats and only 9 by Republicans , which means that Republicans defend fewer vulnerable seats and need to keep only a fraction of the seats in the balance to regain the House.
Bottom line: The basic hypothesis is that Republicans win in the House, but with fewer seats than seemed possible until a few months ago. The data seems to indicate that Republicans will get 10-20 seats (compared to 20-30 expected at the beginning of the summer), leaving them with a rather small majority, which could affect day-to-day political decisions, such as the financing of government activities and the increase in the debt ceiling. A victory is a victory nonetheless: therefore, from the point of view of the markets, a Republican majority in the House, regardless of the size of the majority itself, will mean that Biden's legislative agenda is in fact frozen (even if there could be some compromises on issues such as cryptocurrencies and energy security).
The Senate
As we have said several times, the Senate is very different from the House, with only a third of the 100 Senate seats up for grabs and Democrats holding fewer seats (14) than Republicans (20). Competition in the Senate tends to be much more candidate-centered and fundraising driven; moreover it depends on the peculiarities of the States. Democrats have very narrow majorities and must actually hold on to every seat in the Senate to keep the majority. In practice, control of the Senate will come down to a few decisive challenges; among these, however, there are four in particular that are likely to rule the Senate, including the challenge of Georgia (currently a Democratic state), Nevada (Democratic), Pennsylvania (Republican) and Wisconsin (Republican).
Bottom line: 36 days before the mid-term elections, the Senate is running a ballot, although the odds of keeping the Senate are slightly in favor of the Democrats. If the Democrats win, the majority will remain thin as a razor blade – a good result would translate into a majority of 52 to 48, the same would also be for Republicans, for whom a good ballot would still result in a majority. just as tight. To clarify: a Republican Senate would be a challenge for President Biden, as Republicans would control the agenda and could make it much more difficult for Biden to nominate his candidates for the judiciary and administration; however, as long as the House is Republican, the Senate will be a minor problem for the markets.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/repubblicani-camera-elezioni-meta-mandato/ on Sun, 09 Oct 2022 06:00:43 +0000.