YESTERDAY’S TERRIBLE INFLATION REPORT virtually guarantees a 75 basis point rate hike from the Federal Reserve on Nov. 2 — and it also is the last straw in the election outlook. Republicans are headed for a very good night on Nov. 8.
THE MOMENTUM IS CLEARLY TILTING toward the GOP, as polls show that anxiety is rising again among voters over stubbornly high inflation. A solid election outlook for Republicans may have been one of the reasons for the puzzling stock market rally yesterday.
IT SURELY WASN’T THE INFLATION REPORT, which has raised a fundamental concern — the Fed’s aggressive tightening hasn’t worked yet, which means another big move is likely after a 75 basis point hike on Nov.2. Tightening could persist well into the winter.
DEMOCRATS WE TALKED WITH yesterday were dismayed, and were largely annoyed that President Biden hasn’t ruled out a recession this winter; it could be mild, he said, but his confusing message this week was the last thing Democrats needed. “Why didn’t he just say the jobs market is great and the economy is not in recession?” one Democrat told us.
THE MOOD IN WASHINGTON is that the House is lost; Republicans only need a net gain of five seats, and something like 12-to-20 seems likely. And some key Senate races are moving away from Democrats in Pennsylvania, Wisconsin and Nevada. A one-seat net Senate pickup for the GOP is increasingly likely, potentially giving Republican control of both houses.
THIS COULD BE A MARKET PLUS: Even if they just take the House, that would be enough for Republicans to thwart any activist legislation; no significant tax hikes would be likely in 2023-24, and spending (except for defense) would be restrained.
AS WE WROTE EARLIER THIS WEEK, Democrats are bracing for a furious post-mortem, with a focus on overly liberal prescriptions and poor messaging. A house-cleaning is likely by Thanksgiving.
NO ONE EVER SAID POLITICS IS FAIR, and the Democrats were stuck with making policy after the worst pandemic in 100 years. Hindsight is 20-20, and it’s now clear that fiscal policy was way too stimulative and monetary policy was way too loose. The payback is coming on Nov. 8, with the Republicans poised to easily capture the House and perhaps the Senate as well.
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