Economic Effects of US Elections

It would have been better for the economy, at least in view of the coming months and quarters, if the Democrats had also gained control of the Senate. The chance of a new support package for the economy, which could be called a very extensive one at $2.000 to $3.000 billion, would have been almost 100%. 

With a Democrat in the White House and Republicans in the Senate, that can be put to rest. Especially given the deep political divisions in the country and the desire of Republicans to make Biden what is called a 'one-term president'. There is a good chance that some Republican senators will probably try to get Biden out of the White House in 4 years.

Political stalemate
There is therefore a great chance that both camps will not grant each other much and that we will be faced with a political stalemate in the coming years, with the courts, up to the Court of Appeal, being busy. Both parties agree that the economy needs support, so a support package is on its way. That's going to be smaller in volume than it could have been. 

Anyone who thinks the power of the big tech companies is too much of a good thing is also disappointed with the outcome. Because the chance that these companies will have to deal with many new rules, up to and including forced break-up, has shrunk considerably. While economists are not so disappointed with the result but are sad because there could have been more in it, investors have every reason to put on party hats.  

Rules for big tech
With the stalemate in Washington politics, the new rules for large companies cannot simply be scrapped. The chance of much higher taxes for companies has also shrunk. That is more likely to do the prices good than bad. But it is mainly due to the reduced chance of new rules for big tech. Why? This is why.  

The S&P500 index has done excellently this year, the index is 25% higher than at the start of the year. If we look beneath the surface, we immediately see that the index is being taken in by 10 companies. The S&P490 index, let's say, is down a few percent this year. Anything that had jeopardized the performance of the 10 stocks that boosted the index could easily put the entire index under downward pressure. That danger has largely passed.  

Money presses keep running
What excites the market is the prospect of less tension in the world under Biden. Especially when it comes to tensions between the US and traditional allies. The market is supported by the fact that the economy is receiving some new support from the government. Support that is sufficient to keep the recovery going, but will not have such an effect that the US central bank Fed can scale down its level of support. In other words: the money printing presses remain running, even if the government contributes.  

The last but not least element why investors have reason enough to be in good spirits after the American elections is that the chance that Fed Chairman Jerome Powell will continue to lead the bank in the coming years. His term expires in early 2022 and the new president can reappoint him or nominate someone else. Either way, the Senate has the final say.  

Monetary meat in the cockpit
If Biden puts forward a new chairman, the Senate can reject it much more easily than reappointing Powell. Powell is well known to the markets, who know what they are talking about. Rejecting him could lead to panic on the markets, with dire consequences for the economy. No Republican wants that in 2022, because that year is also an election year! In 2 years, 34 senators will be re-elected. Of those 34, 22 are Republicans. Torpedoing Powell and causing uncertainty and panic is not wise.  

Speaking of the Fed, the interest rate committee recently met. It decided to keep the official interest rate unchanged in the range of 0 to 0,25% and to keep the interest rate at that level for a long time to come. The US economy is recovering from the corona recession in the first half of the year. The speed of the recovery has slowed, Powell said.

According to the bank, the economic prospects are extremely uncertain. Translated: we continue to support the markets and the economy. The level of support will only decrease once the corona pandemic is over. That will undoubtedly be the case in 2021, when a vaccine is found, but the Fed will only reduce the very exceptional support (and then slowly). It will take a while before the bank stops buying bonds and starts raising interest rates. There's a good chance that the next time I watch CNN all night long to see the presidential election results in November 2024, the Fed rate will be 0%.