A Momentum Shift in the Fall Elections
Author: Greg Valliere
August 30, 2022
WE WROTE EARLIER THIS MONTH that Democrats are the slight favorites to retain the Senate, perhaps by a single seat. Now the once-unthinkable cannot be ruled out: the Democrats have an outside chance of retaining the House as well.
WE NEVER BOUGHT THE BELTWAY CONSENSUS in the spring that the GOP could gain 25 or 30 seats (they need a net gain of just five seats to flip the House). But we’re hearing from strategists in both parties that Republicans — bitterly divided between the Donald Trump base and the Mitch McConnell wing — will be lucky to gain a dozen House seats, as four key variables help the unified Democrats:
1. Abortion: This has been a game-changer. Most Americans are opposed to strict abortion limits under any circumstances, as election results have shown from Kansas to upstate New York. In private, GOP insiders concede that the issue of abortion is becoming an albatross for the party, especially in the North.
2. Donald Trump: Love him or hate him, Trump has been an an enormously polarizing figure this summer, which is exactly what McConnell and party officials feared. We have no idea if Trump will be indicted over a wide range of alleged transgressions, but we do think the endless Trump drama — which electrifies his base — is becoming an irritant for the 55% of Americans who are tired of him. If the general election is going to be a referendum on Trump, the Republicans are in big trouble.
3. Money: The Democrats, somewhat surprisingly, have a huge fundraising advantage, which is making a difference in close races such as the Ohio Senate campaign. Republican strategists want to save their money, and thus have lightened up on spending in states like Pennsylvania, where Dr. Mehmet Oz is fading..
4. Inflation: Yes, gasoline prices have softened, but it’s too early for Democrats to consider this a big plus, for two reasons: a looming energy crisis in Western Europe could infect prices this fall in the U.S. as well, driving gasoline prices higher again, and food prices have not fallen by much, still a negative for Democrats.
IN ADDITION TO THE DIRECTION OF INFLATION, there are other unknowns: whether Joe Biden’s channeling of Harry Truman, with strident campaign rhetoric, could backfire; geopolitical hot-spots like Ukraine and Taiwan; and the increasing threat of a recession, which has the financial markets on edge.
OUR PREDICTION, STILL TENTATIVE, is that the Democrats have a 55% chance of keeping the Senate and, amazingly, a 40% chance of retaining control of the House. Even a modest victory by Democrats would have major implications for the financial markets, which until recently were counting on no new taxes for at least two years, with a decrease of spending and government involvement in the economy.
A WEEK IS A LIFETIME IN POLITICS, according to the old adage, and there will be more momentum shifts between now and Nov. 8, as the election outlook stays tight. The markets will have to pay attention because of the clear economic policy implications if the Democrats hang on to power.
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