Dem Midterm Sweep

Patrick McHenry · Lazard

Trump still dominates the GOP, but the MAGA coalition fragmented and Republicans need to win back voters.

McHenry says Trump still has mastery over the Republican Party and is one of the most popular Republican presidents within the party, even though he is unpopular with the electorate. The MAGA coalition, however, was fragmented. McHenry says part of it stayed home because immigration enforcement focus inflamed the Hispanic community that had voted for Trump in key states like Texas, and part of it simply did not show up. He asks whether those voters are done with voting Republican.

“Part of it got fragmented because of the focus on illegal immigration... which inflamed the Hispanic community that voted in president Trump in key states like Texas. They stayed home.”at 11:16

Libby Cantrill · PIMCO

This midterm is a 1974-style referendum on the executive branch, not a 2006-style wave.

Cantrill argues that the result is bigger than the 2006 wave, in which Democrats took both the House and Senate. She compares it to 1974 and calls it a total referendum on the executive branch. Her evidence is the breadth of the swing: Democrats are winning in places they did not think were competitive, and a Nevada district that had never elected a Democrat looks likely to flip. She also cites talk of 40 to 50 seats flipping.

“This is not 2006... This is 1974... This is a total referendum against the executive branch.”at 18:09

Libby Cantrill · PIMCO

Incoming Democratic House will be more moderate, with more blue dogs, pleasing deficit hawks.

Cantrill says Democrats are winning in more traditionally Republican places, so the incoming caucus will be more moderate than it has been for a long time, with more blue dogs. She expects this to matter for markets. Because the Democrats must show voters they can govern, she sees a window for a deal, and the moderate tilt is what makes fiscal discipline more likely.

“This is going to be a more moderate group of Democrats than we have seen for a long time. There are gonna be more blue dogs. This is like, be still my deficit hawk heart.”at 19:35

Leslie Vinjamuri · Chicago Council on Global Affairs

Midterm results were driven by cost of living, not foreign policy, despite the Iran war.

Vinjamuri says the midterm results were about the Iran war only because it hit people's everyday lives. Her example is that driving across the Midwest is much more expensive now. She adds that corruption mattered and that voters were unhappy with disruptive foreign policy. She does not see it as a huge foreign policy election, and she thinks Marco Rubio may glide through because he has not been the face of the war.

“I don't see this as a huge foreign policy election... driving your car across the Midwest is much more expensive now than it used to be.”at 28:28

Joe Lavorgna

Democrats will effectively control the House, as voters disfavour the Iran war.

Lavorgna expects Democrats to effectively control the House. His support is that the public has not viewed the Iran conflict favourably, with approval starting at 47% when the US went in. He argues that approval for a war tends to fall over time, which hurts the party in power.

“[Democrats] are effectively gonna control the [House].”at 38:24

Mara Karlin · Johns Hopkins University School of Advanced International Studies (SAIS)

US Iran war objectives are unclear, so Congress will likely restrict resources for it.

Karlin says the US war with Iran has no clear objective. Possible aims, including the nuclear program, the missile program, supporting the Iranian public after January's uprising, or collapsing the regime, are not coherent. She expects harder questions from Congress, which can take away resources for a war she calls profoundly confused.

“It's not clear what objective they were trying to achieve other than fundamentally to collapse the regime. So I expect a lot harder questions coming from congress.”at 25:06

Leslie Vinjamuri · Chicago Council on Global Affairs

Signs suggest Trump is pushing negotiations over new strikes on Iran in the short term.

Before the midterm results, Vinjamuri saw several signs that Trump was not sure about renewed strikes and was pushing down on negotiations. Evidence: talks, even on Russia and Ukraine, were scheduled in the Middle East, which is not where you would plan to bomb hard. A surprise announcement halted military assistance to Israel. She describes a president who does not love war or disruption, though he retains large executive authority.

“there were several kind of signs that maybe Trump wasn't so sure, pushing down on those negotiations... Not a location you would choose if you were planning to bomb hard.”at 29:44

Joe Lavorgna

US expected to exit the Iran conflict by end of Q1 next year, pushing energy prices lower.

Lavorgna explicitly frames this as a guess that the US will be out of the Iran conflict by the end of Q1 next year. His support is political: the public has not viewed the Iran operation favourably, the approval rating was 47% when the US went in, and approval for a war goes down rather than up over time. He expects the exit to push energy prices lower, which would also give the Fed a reason not to tighten as aggressively.

“I'm gonna make a guess that we're out by the end ... but we basically pulled out by the end of the first quarter of next year, which will push energy prices lower.”at 38:37

Libby Cantrill · PIMCO

Canada tariffs and Russia sanctions could reach a veto-proof majority in Congress.

Cantrill says Canada tariffs are a rare issue where a veto-proof majority could form. Evidence: the backlash in the Upper Midwest against the tariff agenda. Russia sanctions are another example, since they upset Republicans and Democrats on the Hill. Outside these issues, she expects the filibuster and the need for compromise to limit legislation.

“I could see that actually getting that to that veto proof majority.”at 21:34

Joe Lavorgna

The problem with tariffs was poor implementation, not tariffs themselves; they are neither good nor bad.

Lavorgna argues the tariff program was badly executed. A 10% across-the-board tariff on national security grounds, phased in gradually and grounded in law, could have been defended. He says the IEEPA-based tariffs, about 6% of the total, were done in line with the law. He faults the process: Mexico and Canada were tariffed in February with no responsible sequencing. Tom Keene adds that a responsible process could have led to a blended tariff of 2-3% rising to 10%, but the policy instead came through an April Rose Garden announcement. Lavorgna concludes tariffs are a tool whose merit depends on how they are used.

“Tariffs aren't a bad thing. Tariffs are neither good nor bad. It's not what they're used for.”at 36:44

Patrick McHenry · Lazard

Expects a continuing resolution with no defense increase, and the NDAA signed by Christmas.

McHenry says the president is asking for a trillion-and-a-half of new defense spending, but the government operates under a continuing resolution that expires December 11. Because the House and Senate are fractured after the election, he expects a continuing resolution with no defense increase. The NDAA, which has passed every year since Truman, is largely bipartisan and limited in nature, so he expects it to be signed barely by Christmas.

“You'll not see a defense plus up, but you'll see the defense policy NDAA bill get signed into law barely by Christmas because much of that can be bipartisan and limited in nature.”at 9:50

Libby Cantrill · PIMCO

Permitting reform could pass in the lame duck, easing red tape for both traditional energy and renewables.

Cantrill says permitting reform is a huge bill that traditional energy advocates want, since it allows more traditional energy assets to be built and reduces red tape. It also reduces red tape for renewables. She sees it moving in the lame duck session, with some Democratic support, because Democrats want to clear the decks. A bipartisan Senate vote would still be needed.

“I also think you could see something like permitting reform actually gets... reduces red tape, but then also reduces red tape for renewables.”at 17:26

Joe Lavorgna

Affordability has been a real problem, collapsing real wage growth, which has turned negative.

Lavorgna says affordability has been a real problem and has helped collapse real wage growth, which he describes as negative. He ties this to the Iran crisis: markets were complaining that the president's potential retreat in Iran was prolonging the crisis, and he judged the crisis would be more complicated and longer. The costs of that crisis therefore fed into household prices, which pushed real wages down.

“from an affordability perspective... has been a real problem because it's helped collapse real wage growth. It's been negative.”at 36:09

Joe Lavorgna

Fed likely to deliver about 100 basis points of total hikes, though falling oil could delay them.

Lavorgna's own forecast is about 100 basis points of total Fed hikes. He says falling oil prices, which would follow an Iran exit, could give the Fed an excuse to wait rather than be more aggressive than his baseline. He also says he likes the new Fed leadership's direction and does not expect monetary policy to tighten too far.

“Fed not to be more aggressive than what I'm thinking. You know, 100 basis points in total hikes because oil moves lower, that might be an excuse to wait”at 38:37

Joe Lavorgna

Lame-duck Congress will pass no meaningful economic policy; only routine mandatory items get done.

Lavorgna expects no meaningful economic policy from this Congress during the lame duck. He says the bills that will pass are routine mandatory ones, such as farm funding and defense reauthorization, plus budget continuing-resolution extensions. He argues the president, unlike a lame duck, could still act aggressively by executive order, so policy will come from the executive rather than Congress.

“No. No. Can't. I mean, it's a lame duck. The president won't be a lame duck because, again, he could be very aggressive, through executive order, but no, there won't be any policy.”at 39:05

Joe Lavorgna

Debt ceiling fight likely to be messy, with Trump possibly using it as leverage against Democrats.

Lavorgna says the debt ceiling must eventually be raised, and that the president may use it as leverage against Democrats. He expects that to make the process very messy. He calls this kind of political dysfunction unhealthy and says it is not good for risk assets.

“...on the debt ceiling, maybe the president uses that as leverage against the Democrats. So it's going to be really messy.”at 39:26