Markets tend to like political gridlock. 2022 midterms have been released. Republicans currently control the House, while Democrats control the Senate and the presidency. It is less likely to be done as opposing parties share power. Still, the housing debt debate and other topics from cannabis support to student loans could still affect the market and the economy at large in 2023.
Gridlock as an improvement in the market
Research shows that the stock market can perform well in midterm elections. We are not looking to see some of the known in the market from the late September lows. It is believed that this is only a small thing that is done when the power is shared and the market supports such stability.
The Fed is still important
However, although politics is important, it is difficult to believe that the market will not be covered by the Fed’s 2023 meeting schedule to set interest rates more than political news.
Housing debt is like a risk
One issue with shared power is the rising cost ceiling has become a lot more complicated. The debt ceiling should be raised in 2023, if not before. This can be a risk for the financial market, if it is not done systematically.
It is a key point for the Republicans, who will control the House from January, because they can prevent efforts to raise the debt. Even Joe Manchin, a Democratic senator, would like to see budget cuts before raising the debt ceiling.
2011 shows the danger here, and the limit happened when the midterms led to gridlock. The summer 2011 debt ceiling debate led to brinkmanship, US debt was downgraded and the market fell over 10%. However, the debt ceiling has been raised several times since 2011, with little problem.
It remains to be seen which other policies will affect the market before the next election in 2024. Cannabis continues to be a topic of legal debate and it is likely that the President may act there and -no home support if he chooses.
Student loan forgiveness, after a legal challenge over what the secretary of education can legally do to forgive student loans, could be in jeopardy with Republican control of the House.
If student loan debt is not forgiven, that could make US consumers cut back a bit and the resumption of student loan payments in January 2023 could be a small drag on overall spending. However, President Biden is now considering a freeze on student loan payments through 2023. That could provide relief to some US consumers.
Political deadlock is often good for markets. However, debt settlement debates create some risks. It’s likely to end up being less, but if that includes no progress on the debt ceiling, the market could soon weaken. It is hard to believe that the actions of politicians in 2023 will do much to take the main focus of the market and Fed policy makers.