Tuesday’s election results handing Democrats control of the U.S. House and maintaining Republicans’ hold on the Senate, two years after Donald Trump’s victory as president, are likely to have subtle but not insignificant effects on the U.S. economy in the months ahead.
The immediate verdict from financial markets was sunny, as the S&P 500 stock index rallied 2.1 percent on Wednesday, while the dollar and 10-year Treasury yields were little changed.
Regardless of the power shift in Washington, the nine-year-old U.S. expansion seems poised to break the record for the longest ever in mid-2019. Predictions of massive swings in economic momentum after prior elections proved wrong.
“Divided government isn’t a bad thing for the U.S. or the economy,” Alberto Alesina, a Harvard University economist who co-wrote a book on the economic impact of divided politics, said before the results were in. “Divided governments ensure policies that are not too extreme one way or the other get approved. It almost always ensures a very strong balance.”
The economic confidence of consumers has tended to mirror the fortunes of their candidates, with Republicans feeling more optimistic after Trump’s election while Democrats were less upbeat. Now those trends may be poised to reverse, and potentially lift overall sentiment.
Read more in Bloomberg.