Research Briefing | Jan 9, 2024

This year’s US elections will be pivotal to the economic outlook

The upcoming elections will affect the US economy beyond 2024 and are a major source of near-term uncertainty. Although we cannot know the precise policy mix of either party, which prevents detailed modelling at this stage, we have a view on potential post-election scenarios and their broad economic implications.

What you will learn:

  • In our view, fiscal and trade policy will undergo substantial changes over the medium term, despite who is elected, which will likely be positive for the growth outlook – at least in the early part of the new presidential term – and raise the outlook for inflation and/or interest rates.
  • No matter what happens on Election Day, major tax policy actions are likely to occur in 2025. Republicans will rush to prevent Trump-era tax cuts from expiring at the end of the year, while Democrats will also feel an urgency to prevent a similarly timed expiration of expanded subsidies for health insurance. In a divided government, a grand bargain that permanently extends key tax priorities of both parties would add at least $1tn to deficits through FY2033, and even more beyond.
  • Unlike tax policy, major spending changes are not guaranteed. In a Republican sweep of this year’s elections, the party could push for greater spending on national defense. In exchange, Democrats would ask for boosts to nondefense outlays. Under full Democratic government control, social safety net expansions would be in play, but narrow congressional majorities would limit their scope. In a divided government, prospects for spending changes are most tenuous.
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