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The Republicans gain control of the Senate

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REPUBLICANS HAVE won control of the Senate, a victory with big ramifications for policy and power in Washington no matter who ultimately wins the presidential contest between Donald Trump and Kamala Harris, where Mr Trump has taken a clear lead.

It became evident that Republicans would control the upper chamber after the party’s candidate in West Virginia quickly flipped a seat held by former Democrat Joe Manchin, which had been long expected. Then networks called the Ohio Senate race—the most expensive in the nation—for Republican Bernie Moreno, who unseated Sherrod Brown, the Democratic incumbent. They secured their 51st seat when Deb Fischer (pictured), a Republican senator in Nebraska, fended off a surprisingly strong challenge from Dan Osborn, an independent.

Democrats’ attempts to flip Republican seats in Texas and Florida failed. As the night wore on, Republicans remained competitive in other close races and could contemplate how large their majority may become when all the votes are counted.

Republicans will find their win particularly satisfying after failing to retake the Senate in two consecutive close elections. Four years ago the contest came down to a pair of run-off races in Georgia, where Democratic candidates won close victories. That allowed Mr Biden to govern with his party in narrow control of the chamber, relying on Ms Harris, as the vice-president, to cast tie-breaking votes.

Republicans were even more optimistic ahead of the 2022 midterm elections. But flawed candidates lost what should have been competitive races against Democratic incumbents in Georgia, Arizona, New Hampshire and Nevada. The Republicans also lost an open seat in Pennsylvania, after John Fetterman bested Mehmet Oz, a surgeon and TV personality endorsed by Mr Trump. After also under-performing against expectations in House races that year, Republican leaders decided they needed a new approach in 2024.

Steve Daines, chairman of the National Republican Senatorial Committee, aggressively intervened in primaries to weed out unimpressive candidates in favour of wealthy and telegenic nominees like Tim Sheehy in Montana and Dave McCormick in Pennsylvania. In deep blue Maryland, Larry Hogan, the popular former Republican governor of the state, forced Democrats to commit tens of millions of dollars to a race Mr Hogan was always unlikely to win (and did not).

The price of victory was steep. In Ohio, the two major party campaigns and outside groups spent more than $500m on advertising. Meanwhile, Pennsylvania’s voters were treated to nearly $350m in unrelenting adverts for the Senate race alone, in addition to more than $400m-worth for the Trump-Harris contest. In Montana—home to just over 1m people—at least $282m was spent on advertising. Arizona, Maryland, Nevada, Texas, Minnesota and Wisconsin all became nine-figure contests.

Why were donors willing to shell out billions of dollars on just a handful of Senate races? The fate of presidencies runs through the chamber: Senators must approve more than 1,000 high-ranking jobs from cabinet officers to generals and ambassadors. New federal judges—including those pegged for the Supreme Court—also require Senate endorsement.

Republican control could be a moderating force if Mr Trump is re-elected. The Senate has welcomed more right-populist Republican members like Mr Moreno in recent years, but still remains a bastion of pre-Trump conservatism. A narrow Republican majority in the Senate could empower moderates to reject Trump nominees outside the political mainstream.

Nothing united Republicans during Mr Trump’s first term quite like his judicial nominations. He enjoyed a Republican-controlled Senate for four years and the body approved 234 of his nominees, including three Supreme Court justices. If he wins, it is plausible that an outright majority of the high court will have been chosen by Mr Trump by the time his second term ends.

Should Ms Harris pull out a late victory, she would struggle to seat a Supreme Court justice so long as the Republicans control the upper chamber. How Republicans would handle lower-court nominees—or even a moderate and older Supreme Court pick—remains an open question. Mitch McConnell, the Republicans’ departing Senate leader, showed in 2016 that the party can obstruct Democratic judicial picks and weather the political backlash.

Mr McConnell, however, will not be leading Republicans next year. On November 13th the Senate will vote in what is currently a three-way race to replace him. John Thune, a South Dakotan and current McConnell leadership deputy, is the frontrunner and recently won a valuable endorsement from Mr Daines. John Cornyn of Texas represents Mr Thune’s biggest threat. Rick Scott of Florida is running a longshot race from the right.

Mr Thune, an establishment figure close to Mr McConnell, once had a rocky relationship with Mr Trump but has since patched it up. He served alongside Ms Harris when she was a senator, but the vice-president did not form any notable bipartisan relationships during her four years in the upper chamber. Mr Thune may not be a pugnacious populist, but he will no doubt be ready for a confrontational relationship if Ms Harris takes the White House.

Key provisions of Mr Trump’s 2017 tax-cutting law will expire absent legislative action next year. Negotiations have yet to begin in earnest, but some battle lines already are being drawn. A Republican-controlled Senate is likely to fight to keep a contentious cap on tax deductions in high-tax states. Whether Ms Harris or Mr Trump wins, the Senate will also have a say on whether to expand the child tax credit; whether to increase or cut corporate and individual rates; whether to fulfil campaign promises such as removing taxes on tips; and myriad other provisions. The final result will come down to presidential priorities and whether Democrats or Republicans control the House (and by how much).

There are other looming fights where a Republican-controlled Senate could be decisive. Amidst recurring fights over America’s debt limit, the lame-duck Congress could pass another in a succession of short-term government funding bills, but at some point in 2025 Congress will be responsible for a proper budget. Republicans agonised over these fiscal matters for much of 2023 and 2024. And the Senate Armed Services Committee will now be led by a Republican who wants to increase defence spending to 5% of GDP—something that neither Ms Harris nor Mr Trump necessarily wants.

If Mr Trump wins the electoral college, a sizeable Senate majority and likely control of the House of Representatives would endow Mr Trump with plenty of political capital. How to spend it would be a subject of factional arguments. But the direction of travel would be clear.

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Economics

The Fed is likely cutting rates again Thursday. Everything you need to know

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Federal Reserve Board Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024. REUTERS/Tom Brenner

Tom Brenner | Reuters

The Federal Reserve likely will stick to the business at hand when it wraps up its meeting Thursday with another interest rate cut, but will have its eye on the future against a backdrop that suddenly has gotten a lot more complicated.

Financial markets are pricing in a near-certainty that the central bank’s Federal Open Market Committee will lower its benchmark borrowing cost by a quarter percentage point as it seeks to “recalibrate” policy for an economy that is seeing the inflation rate moderate and the labor market soften.

The focus, though, will turn to what’s ahead for Chair Jerome Powell and his Fed colleagues as they navigate a shifting economy — and the political earthquake of Donald Trump’s stunning victory in the presidential race.

“We think Powell will refuse to give any early judgment on the implications of the election for the economy and rates, and will seek to be a source of stability and calm,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a a note issued before the election’s outcome was known.

In keeping with policymakers’ historical desire to stay above the political fray, Powell “will say the Fed will take the time it needs to study the new administration’s plans” then will “refine this assessment as actual policies are developed and enacted,” Guha added.

So while the immediate action will be to stay the course and enact the cut, which equals 25 basis points, the market’s attention likely will turn to what the committee and Powell have to say about the future. The fed funds rate, which sets what banks charge each other for overnight lending but often influences consumer debt as well, is currently targeted in a range between 4.75%-5.0%.

Market pricing currently favors another quarter-point cut in December, followed by a January pause then multiple reductions through 2025.

Preparing for Trump

But if Trump’s agenda — tax cuts, higher spending and aggressive tariffs — comes to fruition, it could have a meaningful impact on a Fed trying to right-size policy after the mammoth rate hikes aimed at controlling inflation. Many economists believe another round of isolationist economic moves from the president-elect could reignite inflation, which held below 3% during Trump’s entire first-term despite a similar recipe.

Trump was a frequent critic of Powell and the Fed during his term, which ran from 2017-21, and is in favor of low interest rates.

“Everyone is on the lookout for future rate cuts and whether anything is telegraphed,” said Quincy Krosby, chief global strategist at LPL Financial. “Also, however, there’s the question of whether or not they can declare victory on inflation.”

Any answers to those questions would be largely left to Powell’s post-meeting news conference.

Though the committee will release its joint decision on rates, it will not provide an update on its Summary of Economic Projections, a document issued quarterly that includes consensus updates on inflation, GDP growth and unemployment, as well as the anonymous “dot plot” of individual officials’ interest rate expectations.

Beyond the January pause, there’s considerable market uncertainty about where the Fed is heading. The SEP will be updated next in December.

“What we’re going to hear more and more of is the terminal rate,” Krosby said. “That’s going to come back into the lexicon if yields continue to climb higher, and it’s not completely associated with growth.”

So where’s the end?

Traders in the fed funds futures market are betting on an aggressive pace of cuts that by the close of 2025 would take the benchmark rate to a target range of 3.75%-4.0%, or a full percentage point below the current level following September’s half percentage point cut. The Secured Overnight Financing Rate for banks is a bit more cautious, indicating a short-term rate around 4.2% at the end of next year.

“A key question here is, what’s the end point of this rate cut cycle?” said Bill English, the Fed’s former head of monetary affairs and now a finance professor at the Yale School of Management. “Fairly soon, they’ve got to think about, where do we think this rate cut period changes with the economy looking pretty strong. They may want to take a pause fairly soon and see how things develop.”

Powell also may be called on to address the Fed’s current moves to reduce the bond holdings on its balance sheet.

Since commencing the effort in June 2022, the Fed has shaved nearly $2 trillion off its holdings in Treasurys and mortgage-backed securities. Fed officials have said that the balance sheet reduction can continue even while they cut rates, though Wall Street expectations are for the run-off to end as soon as early 2025.

“They’ve been happy to just kind of leave that percolating in the background and they probably continue to do that,” English said. “But there’s going to be a lot of interest over the next few meetings. At what point do they make a further adjustment to the pace of runoffs?”

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Economics

Donald Trump wins big and fast

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IT IS AN extraordinary comeback—or, as Donald Trump triumphantly put it in West Palm Beach, Florida, in the early hours of November 6th, “a political victory that our country has never seen before”. After losing four years ago he has survived impeachment, conviction as a felon, numerous other indictments and two assassination attempts, and will become America’s 47th president, to add to his stint as the 45th. He becomes the oldest man ever to win the White House.

Many had expected a long wait for the result of an extremely close election to become clear. In the event, the outcome was evident within hours. Mr Trump looked set to win all seven of the critical swing states: he triumphed in North Carolina, Georgia, Pennsylvania and Wisconsin, and had strong leads in Michigan, Arizona and Nevada. That translates into a decisive advantage in the electoral college.

It appears that Mr Trump was able to draw support from both urban and rural voters at levels notably higher than in his contest against Joe Biden in 2020. In state after state, Mr Trump performed better than he had in 2020. In Florida, for example, where he won by three percentage points last time, his margin is on track to surge to 12 points. And although opinion-poll aggregates had consistently shown Kamala Harris to be ahead in the national popular vote, it seems that Mr Trump may have won that too. Just as in 2016 and 2020, in other words, the polls underestimated Mr Trump’s support.

What went wrong for Ms Harris? For one thing, her advantage among women voters, on whom Democrats were pinning their hopes, turned out to be smaller than expected. The gender gap, between the votes of men and women, actually narrowed, from 23 points in 2020 to 20, according to exit polls. Among Hispanic voters, Mr Trump made striking inroads, improving his margin by ten percentage points compared with 2020, according to CNN’s exit poll. The trend was particularly strong among Hispanic men: Joe Biden won their vote by a margin of 23 points; this time Mr Trump was on track to prevail among them by a margin of ten points. More broadly, dissatisfaction with high inflation and immigration contributed to a sense among voters that the country was on the wrong track, for which they naturally blame the incumbent. Much as Ms Harris sought to present herself as the candidate of change, she was stuck with her association with the current administration.

As well as the White House, the Republicans also wrested back control of the Senate. It was always going to be hard for Democrats to hold on to their slender majority in that chamber, given that they were defending a disproportionate number of seats (a third of which are up for election in each election cycle). Not only did Republicans take the vacant seat in West Virginia, as expected; they also flipped Ohio and Montana and prevailed in a close contest in Nebraska. The upsets Democrats hoped for in Florida and Texas failed to materialise. Republican control of the Senate smooths the way for Mr Trump to make important appointments—from cabinet secretaries to generals to Supreme Court justices—that require Senate confirmation.

Whether the Republicans complete their sweep by retaining control of the House of Representatives is still not clear. Results in California, to arrive later, will determine that. But Mr Trump, in his victory speech, was confident that the House would be his, too.

“This will truly be the golden age of America,” he declared. Few will question that the country is indeed entering a new age. Whether Mr Trump will truly “heal” America, as he promised, is more debatable. Beyond America’s borders, too, the consequences are momentous. From tariffs to climate change to Ukraine, the world must brace itself for Trump II.

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Economics

Donald Trump claims victory

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DONALD TRUMP claimed victory in the 2024 presidential election, saying that “America has given us an unprecedented and powerful mandate”. Pennsylvania was called for the Republican shortly after 2am Eastern time. He had already taken a clear lead in the race, having earlier claimed the swing states of North Carolina and Georgia. Kamala Harris’s path to victory vanished, as she badly underperformed Joe Biden’s showing of four years ago.

Ms Harris’s fortunes shrank remarkably quickly. Within a few hours of the first polls closing it had become clear that she was failing to make headway against Mr Trump. It appears that Mr Trump was able to draw support from both urban and rural voters at levels notably higher than in his contest against Mr Biden in 2020.

Mr Trump was speaking during the early hours of November 6th, at Palm Beach County convention centre, in Florida. In the previous days opinion polls had appeared to show that momentum favoured Ms Harris, whereas the former president had appeared tired and frustrated with his campaign. That makes his apparent success all the more remarkable. Republicans also claimed control of the Senate, as had been widely expected, and seemed well placed to take the House too.

Beyond the key battlegrounds, the picture had been similarly dispiriting for the Harris campaign. In Virginia, which Mr Biden won comfortably in 2020, Ms Harris eked out only a narrow victory, though even there she was lagging behind Mr Biden’s performance in suburban counties such as Loudoun, outside Washington, DC. That was a concerning trend—and a hint of her eventual losses in Pennsylvania. Her prospects in other parts of the Midwest, including in Michigan and Wisconsin, where suburban voters were crucial to her chances, looked no better. In Florida, Ms Harris did worse than Mr Biden, who lost by just over three percentage points in 2020.

A pressing question for Ms Harris—and the Democrats more widely—is why they did so poorly. As incumbents in other parts of the world discovered, voters were evidently ready to punish those in office. In addition, expectations that women would turn out in sufficiently large numbers to elect the first female president proved wrong. Mr Trump, meanwhile, appears to have done enough to fire up non-white voters, including Latinos and black male voters, to broaden his appeal beyond his showing in previous presidential elections. As a political comeback story, it is a striking one.

This story has been updated

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