Research

A guide to the impacts of the U.S. midterm elections

As a result of the U.S. midterm elections, Democrats won control of the House of Representatives while Republicans will continue to hold the Senate. We examine what this means for the economy and commercial real estate.

Implications for CRE: Our outlook for commercial real estate (CRE) remains unchanged and we expect little, if any, direct impact on CRE from the election results. We generally expect a continuation of gradually rising vacancy rates across property types coupled with slowing rent growth as the economy slows. 

Fiscal policy

The options for fiscal policy will become more limited. Additional tax cuts are almost certainly off the table. Spending on infrastructure remains a possibility given the Democrats’ enthusiasm for it. But some Republicans could push back, citing its cost at a time when both deficits and debts are rising. The president and Congress will also have to agree on a budget and debt ceiling increase next year. Publicly-traded markets tend to respond favorably to a split Congress because of the need for compromise, but that is not guaranteed, especially after policy via one-party rule has boosted the economy and stock market this year.

Trade policy

The president still has a wide berth on trade policy. The administration will still largely control trade relations with China. Democrats should find the US-Mexico-Canada Agreement acceptable and likely pass it. Other trade actions that require Congressional approval could become more challenging.

Deregulation

The president will likely continue to move forward with deregulation where Congressional approval is not required.

Executive orders

A split Congress increases the probability of the president governing by executive orders. This could be like the Obama presidency, but in reverse. Some of these orders could be challenged in the courts, a potentially lengthy process.

Congressional oversight

The Democratic House is likely to take up investigations and inquiries into the executive branch in a way that the current Republican House would not. While this does not have direct implications for economic policy, this could roil markets and increase volatility (already on an upswing) if findings are problematic.

Monetary policy

We expect no direct change to monetary policy.

Judical policy and executive appointments

We expect no direct change to judicial policy or presidential appointments because appointments only require the approval of the Senate which remains controlled by the Republicans who increased their majority.

Impact on the Washington, DC area

We expect no immediate impact to the greater Washington, DC area.

Overall implications for the economy

Our outlook for the economy remains unchanged and we expect little impact from the election results. We continue to foresee economic growth of roughly 3 percent this year followed by growth of roughly 2.5 percent next year and further slowing in 2020. The outlook stems from fading fiscal stimulus, labor scarcity, quicker wage growth, stronger inflation, higher interest rates, a stronger dollar, and restrictive trade policy. If a major infrastructure plan is passed, that could provide a slight boost to GDP growth via government spending in the short run. Infrastructure improvement could boost productivity growth in the medium to long run depending upon which projects are undertaken. And the removal of election uncertainty will be viewed as a positive for both publicly-traded markets and the economy.

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