US Elections: Markets look at a period of gridlock, at least until the midterm elections of 2022 – Rabobank

Although President Trump is contesting the outcome, Biden is likely to be sworn in as the next President of the United States on January 20. However, we may have to wait until January 5 to know whether he will be supported by a majority in the Senate. If not, his ability to govern will be severely restricted by a Republican Senate, especially when it comes to domestic policy, per Rabobank. 

Key quotes

“Biden has been declared the winner of the presidential election. While it remains uncertain until January 5 which party gets control of the Senate, the most likely outcome is that the Republicans hold on to a majority. The Democrats will keep a majority in the House of Representatives, albeit smaller.”  

“Under a Biden administration, foreign and trade policy will remain focused on meeting the challenge of China as the main rival of the US. However, Biden is likely to return to a multilateral approach.”

“The fiscal policy plans of the Democrats are likely to be stopped by the Republicans in the Senate. We are looking at two years of gridlock on domestic policy, until the midterm elections of 2022.”  

“With limited support from fiscal policy, it is up to monetary policy to prop up the economy. However, this comes at a time when the Fed’s ammunition is almost depleted and fiscal policy would be more effective. The combination of limited fiscal policy and continued need for monetary stimulus is likely to remain a drag on longer-term interest rates.”  

“Trump contesting the 2020 results could be seen as the start of his 2024 campaign. He may very well become the informal leader of the Republican opposition after January 20, 2021.”