Midterms could be good news for the US economy


Paras Anand - Head of Asset Management, Asia Pacific

9 November 2018

For once, the outcome of the US midterm elections has gone the way the pollsters and political analysts expected, with the Democrats taking the House of Representatives and the Republicans retaining their marginal hold on the Senate.  In what will be seen by some as an inevitable reaction against an unconventional White House, the question is whether there is anything for investors to consider in this result.

Perhaps not in the short-term. However, as we go through 2019 we might look back and see this result as a further impetus to domestic growth.

Part of the reason for the post-2016 election ‘Trump bump’ was the belief that the economic agenda would be domestically focused, particularly on infrastructure investment. However, there has been limited progress in this area as other issues - tax reform (achieved) and healthcare reform (failed) - have taken precedence.

During the 2016 Clinton election campaign, infrastructure spend was high on the Democrat’s policy agenda (as it was for Trump). It is possible that with a bi-partisan focus on the pent-up need for domestic infrastructure investment, the Democrat view on the budget deficit may change from opposition (to tax cuts) to accommodation (spending on roads, hospitals, airports). 

Any development in this direction would further spur the overall economy, continue to push wages in an already tight labour market, and potentially challenge the current expectations around the Federal Reserve’s activity for next year. Most political events have an underwhelming economic impact - could the US midterms prove the exception?

Important information

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