The 2020 election “was a mess,” said Jon Hilsenrath, editor at The Wall Street Journal, ending with “accusations of widespread fraud and wrongdoing, months of debate and uncertainty for financial markets, and ending with a riot at the U.S. Capitol on Jan. 6.”
Going into the 2022 midterm election, “a great many people were concerned that this would be the new normal. That the very system of democracy that holds the federal government together might be breaking down,” Hilsenrath said during a webinar held by the Society for Advancing Business Editing and Writing.
“People were concerned that this election could be another one of those nightmare scenarios,” he continued. “But we’re not seeing reports of conflicts at polling places over ballots and who does or doesn’t get to vote. We haven’t seen many reports of people claiming fraud. That strikes me as good news – especially good news for the economy because markets don’t function without institutions that work.”
Moving forward in the next two years before the 2024 presidential election, Hilsenrath said, “the macroeconomic story will shape and define the political story.”
“We are dealing with inflation at much higher rates and sustained for a much longer time than what lawmakers or Wall Street expected,” he added.
If inflation slows down, “Wall Street is geared up for good news,” Hilsenrath said. “If inflation improves and the Fed stops raising interest rates as aggressively as they have been doing, maybe we get out in 2023 of this environment with what they call a soft landing at the central bank – if inflation slows down but we don’t get driven into the kind of recession that drives unemployment very high.”
But the other risk to the economy, he said, “is that inflation keeps going up, the Fed keeps raising interest rates, and it drives us into a recession. If that’s what happens in 2023-24, that completely reshapes the economic narrative and the political narrative. Then President Biden and the Democratic party preside over an economy that first had bad inflation and then had a bad recession. And that drives the 2024 election cycle. It also drives the political debate in Washington on what can and can’t get done. Because if things go bad next year, you can be sure Democrats will start blaming Republicans, who are likely to be in charge of the House, for causing it.”
Defied the norms
The 2022 midterm election defied the norms as the Senate will be in Democratic control and Republicans are expected to have a slim lead in the House of Representatives. Usually, the party in power loses seats in Congress and control of at least one house of Congress during a midterm election. Hilsenrath said this midterm will change the cycle of how things are done in Congress.
“When a new party takes power in the White House, their base usually says they have only two years to get things done because you always lose seats in the midterm,” he said. “I think that’s a curious cause and effect. What if instead someone said, ‘Let’s not overdo it in the first two years, because if we overdo it, we might lose seats in the midterms.’ This business of overdoing things and then losing seats in the midterms might end.”
Republicans maintain a lead in the House with 20 races still undecided. Hilsenrath made some predictions on what to expect when a new Congress begins its work.
“What this means is that tax and spending bills are unlikely to make much progress.” Jon Hilsenrath, editor at The Wall Street Journal
“What this means is that tax and spending bills are unlikely to make much progress,” Hilsenrath said. “I think there are certain issues, that even though both parties might agree on the facets of an issue, they won’t agree to get a deal done because then they’d lose a hammer to beat each other with. Immigration is that issue now. I think most people would agree there needs to be a more orderly process for people coming in through the southern border but neither party will give ground on this because they would lose an issue to beat each other over in the 2024 election.”
Debt ceiling must be addressed
Democrats and Republicans in Congress must come to an agreement about the debt ceiling, Hilsenrath said.
“The debt ceiling is very strange instrument the government has,” he said. “The federal government limits itself on how much it’s allowed to borrow. But it doesn’t limit itself on how much it’s allowed to spend. Once debt reaches a certain level, they say we can’t borrow any more. That always runs the risk of causing a great deal of disruption because we need to borrow to fund spending in excess of taxes. Republicans have signaled they want to use the debt ceiling as a tool to impose spending restraints.
“I think we will have some difficult debates over the next few years oriented around shutdowns of the government over the annual budget cycles and also shutdowns and potential spasms in the markets related to the debt ceilings. All this could be very unsettling for the markets.”
A divided Congress means “we won’t necessarily have these big waves of legislation such as we had with the COVID-19 relief legislation or with infrastructure or climate bills,” said Sudeep Reddy, senior managing editor, Politico. He predicted a divided Congress also means more action will be taken on the regulatory side of government it will be more difficult to get legislation through Congress.
“The fact that we didn’t have a ‘wave election’ tells us something about the electorate and the assumptions we made on the economy,” Reddy said. “On inflation, many of us had assumed people would take the old ‘it’s the economy, stupid’ line and connect it directly to their voting behavior. And it shows there are much more complex factors than people voting on inflation, and although it came up in exit polls as a top issue, it was not necessarily the only issue. That serves as a warning for us that as we head into 2023 there will probably be a further increase in the unemployment rate as we go into a presidential election cycle.”
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.