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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

How Donald Trump could win the future

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The Democrats’ appeal to Silicon Valley is eroding

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Trump and Fed Chair Powell could be set on a collision course over rates

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Jerome Powell and President Donald Trump during a nomination announcement in the Rose Garden of the White House in Washington, D.C., U.S., on Thursday, Nov. 2, 2017.

Andrew Harrer | Bloomberg | Getty Images

President-elect Donald Trump and Federal Reserve Chair Jerome Powell could be on a policy collision course in 2025 depending on how economic circumstances play out.

Should the economy run hot and inflation flare up again, Powell and his colleagues could decide to tap the brakes on their efforts to lower interest rates. That in turn could infuriate Trump, who lashed Fed officials including Powell during his first term in office for not relaxing monetary policy quickly enough.

“Without question,” said Joseph LaVorgna, former chief economist at the National Economic Council during Trump’s first term, when asked about the potential for a conflict. “When they don’t know what to do, oftentimes they don’t do anything. That may be a problem. If the president feels like rates should be lowered, does the Fed, just for public optics, dig its feet in?”

Though Powell became Fed chair in 2018, after Trump nominated him for the position, the two clashed often about the direction of interest rates.

Trump publicly and aggressively berated the chair, who in turn responded by asserting how important it is for the Fed to be independent and apart from political pressures, even if they’re coming from the president.

When Trump takes office in January, the two will be operating against a different backdrop. During the first term, there was little inflation, meaning that even Fed rate hikes kept benchmark rates well below where they are now.

Trump is planning both expansionary and protectionist fiscal policy, even more so than during his previous run, that will include an even tougher round of tariffs, lower taxes and big spending. Should the results start to show up in the data, the Powell Fed may be tempted to hold tougher on monetary policy against inflation.

LaVorgna, chief economist at SMBC Nikko Securities, who is rumored for a position in the new administration, thinks that would be mistake.

“They’re going to look at a very nontraditional approach to policy that Trump is bringing forward but put it through a very traditional economic lens,” he said. “The Fed’s going to have a really difficult choice based on their traditional approach of what to do.”

Market sees fewer rate cuts

Futures traders have been waffling in recent days on their expectations for what the Fed will do next.

The market is pricing in about a coin-flip chance of another interest rate cut in December, after it being a near-certainty a week ago, according to the CME Group’s FedWatch. Pricing further out indicates the equivalent of three quarter-percentage-point reductions through the end of 2025, which also has come down significantly from prior expectations.

Investors’ nerves have gotten jangled in recent days about the Fed’s intentions. Fed Governor Michelle Bowman on Wednesday noted that progress on inflation has “stalled,” an indication that she might continue to push for a slower pace of rate cuts.

“All roads lead to tensions between the White House and the Fed,” said Joseph Brusuelas, chief economist at RSM. “It won’t just be the White House. It will be Treasury, it’ll be Commerce and the Fed all intersecting.”

Indeed, Trump is building a team of loyalists to implement his economic agenda, but much of the success depends on accommodative or at least accurate monetary policy that doesn’t push too hard to either boost or restrict growth. For the Fed, that is represented in the quest to find the “neutral” rate of interest, but for the new administration, it could mean something different.

The struggle over where rates should be will create “political and policy tensions between the Federal Reserve and the White House that would clearly prefer lower rates,” Brusuelas said.

“If one is going to impose tariffs, or mass deportations, you’re talking about restricting aggregate supply while simultaneously implementing deficit finance tax cuts, which is encouraging an increase in aggregate demand. You’ve got a basic inconsistency in your policy matrix,” he added. “There’s an inevitable crossroads that results in tensions between Trump and Powell.”

Avoiding conflict

To be sure, there are some factors that could mitigate the tensions.

One is that Powell’s term as Fed chair expires in early 2026, so Trump may simply choose to ride it out until he can put someone in the chair more to his liking. There’s also little chance that the Fed would actually move to raise rates outside of some highly unexpected event that would push inflation much higher.

Also, Trump’s policies will take a while to make their way through the system, so any impacts on inflation and macroeconomic growth likely won’t be readily apparent in the data, thus not necessitating a Fed response. There’s also the chance that the impacts might not be that much either way.

“I expect higher inflation and slower growth. I think the tariffs and the deportations are negative supply shocks. They hurt growth and they lift inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The Fed will still cut interest rates next year, just perhaps not as quickly as would have otherwise been the case.”

Battles with Trump, then, could be more of a headache for the next Fed chair, assuming Trump doesn’t reappoint Powell.

“So I don’t think it’s going to be an issue in 2025,” Zandi said. “It could be an issue in 2026, because at that point, the rate cutting’s over and the Fed may be in a position where it certainly needs to start raising interest rates. Then that’s when it becomes an issue.”

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Congestion pricing in New York gets the go-ahead after all. Maybe

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NOVEMBER 20th marks the first “Gridlock Alert” day of New York City’s holiday season. This is the official designation for the city’s busiest traffic days of the year. But traffic is bad most days, with more than 900,000 cars entering Manhattan’s central business district. INRIX, a traffic-data firm, found that New York City leads the world in urban traffic congestion among the cities scored, with the average driver stationary for 101 hours a year. After years of false starts, including a cowardly pre-election pause by Kathy Hochul, New York’s Democratic governor, congestion pricing has the green light.

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